Problem:
Net Present Value Decisions in the Service Industry
A telecommunications company with a discount rate of 8% is considering two investments.
Voice Service Data Service
Initial cost $(50,000) $(100,000)
Year 1 20,000 50,000
Year 2 20,000 50,000
Year 3 20,000 50,000
Required to do:
A. Calculate the NPV for both services.
B. If the phone company can only provide one service currently, which project should it choose?
C. If this is a regulated service industry, explain why the phone company may have to invest in the voice service.