00:02
To determine how is the company's value will increase from investing in two projects.
00:09
To determine how much company's value will increase from investing, is from investing in the two projects.
00:47
We need to calculate the net present value of each project and then sum them up.
00:52
Net present value of a project is the difference between the present value of its expected cash flow and the initial investment.
01:00
So the formula to calculate npv is npv.
01:40
The cft is expected cash flow at time.
01:44
R is required return or discount rate and d is the time period.
01:49
So let's calculate for each project.
01:51
For project 1, initial investment $1 .50 million.
02:01
The cash flow is year 0, minus $1 .50 million.
02:07
Year 1, $1 .10 million.
02:10
Year 2, $1 .10 million.
02:11
Year 3, $1 .40 million.
02:13
Year 4, $1 .40 million.
02:15
Using a discount rate of 10%, we can calculate the npv.
02:24
Initial investment in this is cash flow.
02:40
So let's calculate it.
05:21
So the npv 1 equals to, npv 1 equals to $33 .47 million.
05:34
So for project 2, or project 2, initial investment is again, minus $1 .50 million.
05:52
Initial investment, $1 .50 million.
06:02
Cash flows for the year 0 is minus $1 .50 million...