2N4.1

Consider the following project:
 

1. Assume that your opportunity cost of capital is 8%. What is the NPV? (1 pt)
    
2. Would you advise your company to take the project? Explain your reasoning (DO NOT just say "The NPV is positive/negative." Explain what the NPV tells you and why that would be good or bad for your company. (2 pts)

I would not advise my company to take this project. The negative NPV indicates that this project costs more than it is worth in present value. That means that taking this project would reduce the current value of the company by $1200. This is clearly not maximizing shareholder wealth and should not be undertaken.

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