The Potential Owner/managers of the Yet to Be Formed New

Multiple Choice

The potential owner/managers of the yet to be formed new In-Line Blade Company are evaluating the prospects for the business. The new equipment is expected to be $5.5 million and have after tax cash flows of $400,000 for the first two years, $750,000 in the next two years, and $1,200,000 thereafter indefinitely. The owners estimate that they require a 15% rate of return. What is the value of the In-Line Blade Company; should they go forward with the investment?

A) $3,872,122; yes.
B) $4,072,236; yes.
C) -$2,000,000; no.
D) $943,596; yes.
E) $105,185; yes.