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Question
Use the following information to answer the following question(s).An alternative energy project will cost $300,000. Depending on the price of electricity, the project will create after-tax savings of either $100,000 per year for 5 years or $75,000 per year for 5 years. If first year savings are only $75,000, the project can be sold at the end of the first year for $250,000. Use a discount rate of 10%.
What is the expected NPV of the project if the option to abandon is not considered.
A) ($4,545)
B) $31,694
C) $37,267
D) $63,388
Answer
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