No cash flows are forecast after year 2, and the equipment will have no salvage value. The cost of capital is 10%.
a. What is the project’s NPV?
b. Calculate the expected EVA and the return on investment in each of years 1 and 2.
c. Why does EVA decline between years 1 and 2, whereas the return on investment is unchanged?
d. Calculate the present value of the economic value added. How does this figure compare with the project NPV?
Ohio Building Products OBP is considering the launch of a
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