A company has two good but highly speculative opportunities to invest in, gas field A and oil field B, yet only enough capital to invest in one due to a stiff interest rate of 15% for both. The investments and expected cash flows are below. Which alternative should be selected based on NPV analysis?
A) Investment A; NPV of A >$50,000 more than “B”
B) Investment A; NPV of A <$50,000 more than “B”
C) Investment B; NPV of B <$50,000 more than “A”
D) Investment B; NPV of B >$50,000 more than “A”
A and B
Initial invest: $200M and $300M
Annual revenue: $100M and $150M
Annual expense: $10M and $25M
Invest life (yrs): 7 and 7
Salvage Value: $50M and $175M
Getting started for 2022 test prep and since no posted answer on this one yet I'll start some discussion. I am coming up with a PV15 for A of approx. $227M & for B of $331M. Suggest the correct answer to be D.
ReplyDeleteI got PV15 for A - $193M and B = $285.8M. The answer is "D". His 2021 book #31 has a wrong answer because it is using $1000 as the expense instead of $10,000 for A. The book needs correction.
ReplyDeleteI'm confused...do you mean you have seen two different Kindle books from different dates that read show different answers? If so, could you get quick photo of each and email to mdavidgo-at-gmail? It would be appreciated.
DeleteI'm confused: are you saying you have seen two different books with different answers? If so, could you get a quick photo of each and email them to mdavidgo-at-gmail? It would be appreciated.
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