Project Delta has the following cash flows:CF 0 -$10,000CF 1 $0CF 2 $500CF 3 $800CF 4 $3,000CF 5 $6,000If this project has a required rate of return of 15%,will management accept or reject the project?NPV @ r =15% = -$4,398(rounded up)
A)Management would reject the project since there are no cash flows greater than zero in year 1.
B)Management would reject the project because the project has a NPV of $4,398.
C)Management would reject the project because the project has a NPV of -$4,398.
D)Management would reject the project because the project has a NPV of -$10,000.

Question

Quizplus · Accepted Answer

The project has a NPV of -$4,398 at a required rate of return of 15%. A negative NPV indicates that the project is not expected to generate enough cash flows to cover its costs, and as a result, management would reject the project. Option A is incorrect because the fact that there are no cash flows in year 1 is not a sufficient reason to reject the project. Option B is incorrect because it states that the project has a positive NPV, while in reality, it has a negative NPV. Option D is incorrect because it represents the initial investment, not the NPV of the project.

Project Delta Has the Following Cash Flows:CF 0 -$10,000CF 1