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A project has been evaluated on the basis that it will cost $22 million and will have a net present value of $4.3 million The project has commenced and $5 millionof the $22 million has been invested. A problem has been discovered that will cost an additional $4.5 million to rectify. The $4.5 million will be payable immediately. What is theNPV of continuing with this project?
Suggested Answer: D
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18 comments · newest first
SH
Shonda
10 months ago
So, the new NPV is $4.3M - $4.5M = -$0.2M.
LE
Leontine
10 months ago
Adding $4.5 million costs a lot!
RO
Roxanne
11 months ago
Totally makes sense, negative NPV means it's a bad move now.
ZO
Zoila
11 months ago
Wait, how can it be negative after spending $5M already?
LE
Lemuel
11 months ago
The initial NPV was $4.3 million.
MA
Madelyn
11 months ago
I feel like the answer might be D, but I'm not entirely confident. I think we need to subtract the $4.5 million from the original NPV, but I need to double-check my calculations.
IR
Ira
12 months ago
If the project originally had an NPV of $4.3 million, and we add the $4.5 million cost, I think it might drop below zero, but I can't recall the exact calculation.
RA
Rasheeda
12 months ago
This seems similar to a practice question we did about sunk costs. I think we shouldn't consider the $5 million already spent, but I'm a bit confused about how to adjust the NPV after the extra $4.5 million.
SH
Shalon
12 months ago
I remember that the NPV is calculated by taking the initial investment and subtracting any additional costs, but I'm not sure how to factor in the already invested amount.
NA
Na
1 year ago
Alright, let's see here. The key is figuring out how the extra $4.5 million impacts the overall NPV. I'm feeling pretty confident I can get the right answer.
TY
Tyra
1 year ago
Okay, I've got this. I just need to update the total project cost and then recalculate the NPV. Shouldn't be too bad.
NO
Novella
1 year ago
Hmm, I'm a bit confused on how to calculate the new NPV with the additional $4.5 million cost. I'll need to review the formula.
WA
Wade
1 year ago
This looks like a tricky one, but I think I can work through it step-by-step.
CL
Clorinda
1 year ago
Wait, if we've already spent $5 million and there's an additional $4.5 million needed, then the total cost is $9.5 million. Subtracting that from the original $4.3 million NPV would give us a negative NPV, so I'm going with B) -$0.2 million.
JA
Jacinta
1 year ago
Okay, so we have a project that has already cost $5 million, and now there's an additional $4.5 million needed to fix a problem. The original NPV was $4.3 million, so I'm thinking the answer is D) $4.8 million.
CH
Chau
1 year ago
I think you're right, the NPV of continuing with the project would be $4.8 million.
MI
Minna
1 year ago
I think the answer is D) $4.8 million.
TR
Tracie
1 year ago
I think the NPV will be negative if we continue with the project.