question archive Violet Sky Health is evaluating a 1-year project that would involve an initial investment in equipment of 25,900 dollars and an expected cash flow of 29,700 dollars in 1 year
Violet Sky Health is evaluating a 1-year project that would involve an initial investment in equipment of 25,900 dollars and an expected cash flow of 29,700 dollars in 1 year
Subject:FinancePrice: Bought3
Violet Sky Health is evaluating a 1-year project that would involve an initial investment in equipment of 25,900 dollars and an expected cash flow of 29,700 dollars in 1 year. The project has a cost of capital of 12.44 percent and an internal rate of return of 14.67 percent. If Violet Sky Health were to use 25,900 dollars in cash from its bank account to purchase the equipment, the net present value of the project would be 513 dollars. However, Violet Sky Health has no cash in its bank account, so using money from its account is not possible. Therefore, the firm would need to borrow money to raise the 25,900 dollars. If Violet Sky Health were to borrow money to raise the 25,900 dollars, the interest rate on the loan would be 8.02 percent. Violet Sky Health would receive 25,900 dollars from the bank at the start of the project and would pay 27,977 dollars to the bank in 1 year. What is the NPV of the project if Violet Sky Health borrows 25,900 to pay for the project?
