15. Nike, Inc. is considering a new inventory system that wll cost $110,000. The
system is expected to generate positive cash flows over the next four years in the
amounts of $25,000 in year one, $35,000 in year two, $45,000 in year three, and
$30,000 in year four. Nike's required rate of return is 8%. What is the net present
value of this project to the nearest ten dollars?
a) $930
b)-$25,000
c) $10,930 d) -$1,800
16. (10 points, show your work): Under Armour, Inc. is considering two potential
investments. The probability distributions of annual end-of-year cash flows for
the respective projects are:
Project A
Probability Outcome
.25
$20,000
.50
$30,000
.25
$40,000
Project B
Probability Outcome
.25
$24,000
.50
$30,000
.25
$36,000
Both projects will require an initial outlay of $100,000 and will have an estimated
life of 6 years. Project A is considered a riskier investment and will have a risk-
adjusted required rate of return of 15%, while Project B's risk-adjusted required
rate of return is 12%.
a) Determine the expected value of each project's annual cash flow.
Project A
Project B
b) Determine each project's risk-adjusted net present value.
Project A
Project B
