Assume a $700M investment, a lease abandonment cost of $50M, and a 15% discount rate. Then assume the following years of revenue (minus expenses & taxes): $650M, $330M, $150M. For Present Worth, use the standard NPV formula:
-700M + 565M + 250M + $99M - $33M = $180M
This is painfully easy except for the abandonment cost part, which must be both subtracted and discounted (it's easy to space out on either of these; the typical problem uses salvage value, which is added not subtracted). Watch for the answer options to offer solutions for either mistake.
I can't implore enough to warily check these "easy" economics problems. The number of smart guys who miss these problems is myriad. I triple check these because they are so easy yet so easy to slip up on. Because overconfidence.
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