1. A project has a total up-front cost of $435.44. The cash flows are $100 in...

1. A project has a total up-front cost of $435.44. The cash flows are $100 in the first year, $200 in the second year, and $300 in the third year. What’s the IRR? If we require an 18 percent return, should we take this investment?

Solutions

Expert Solution

Solution :

The IRR of the investment is = 15.00 % .

As per the IRR Rule,

a. In case the IRR of the investment is greater than its required rate of return, the investment should be accepted.

b. In case the IRR of the investment is lesser than its required rate of return, the investment should not be accepted.

Since, the IRR of the investment at 15 %, is lesser than its required rate of return at 18 %, the investment should not be accepted.

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A project cost $650 and has cash flows of $150 for the first year, $100 for...

A project cost $650 and has cash flows of $150 for the first year, $100 for the second year, and $80 in each of the subsequent years. What is the payback period of the project?

Project A has a total present value of future cash flows of $98,200 and a cost...

Project A has a total present value of future cash flows of $98,200 and a cost of $102,000. Project B has a total present value of future cash flows of $386,911 and a cost of $287,211. Project C has a total present value of future cash flows of $784,000 and a cost of $668,000. Project D has a total present value of future cash flows of $119,865 and a cost of $98,770. Which of these projects has the highest Profitability...

A project has an initial, up-front cost of $10,000, at t = 0. The project is...

A project has an initial, up-front cost of $10,000, at t = 0. The project is expected to produce cash flows of $2,200 for the next three years. The project’s cash flows depend critically upon customer acceptance of the product. There is a 60% probability that the product will be wildly successful and produce CFs of $5,000, and a 40% chance it will produce annual CFs of -$2,000. At a 10% WACC, what is this project’s NPV with abandonment option?...

Brown Grocery is considering a project that has an up-front cost of $X. The project will...

Brown Grocery is considering a project that has an up-front cost of $X. The project will generate a positive cash flow of $75,000 at the end of each of the next 20 years. The project has a WACC of 10% and an IRR of 12%. What is the project’s NPV?

a. Project X has an up-front cost of $20 million. The project is expected to produce...

a. Project X has an up-front cost of $20 million. The project is expected to produce after-tax cash flows of $7.5 million at the end of each of the next 3 years (t = 1, 2, and 3). The project has a WACC=10%. What is the project’s NPV? b. However, if the company waits a year they will find out more about the project’s expected cash flows. If they wait a year, there is a 50% chance the market will...

A project has the following total (or net) cash flows. ________________________________________

A project has the following total (or net) cash flows. ________________________________________ Year Total (or net) cash flow ________________________________________ 1 $50,000 2 70,000 3 80,000 4 100,000 _______________________________________ The required rate of return on the project is 13 percent. The initial investment (or initial cost or initial outlay) of the project is $100,000. a) Find the (regular) payback period of the project. b) Compute the discounted payback period of the project. 6. A project has the following...

1.) Nebraska Instruments (NI) is considering a project that has an up-front after tax cost at...

1.) Nebraska Instruments (NI) is considering a project that has an up-front after tax cost at t = 0 of $1,000,000. The project’s subsequent cash flows critically depend on whether its products become the industry standard. There is a 60 percent chance that the products will become the industry standard, in which case the project’s expected after- tax cash flows will be $900,000 at the end of each of the next three years (t = 1,2,3). There is a 40...

A company is considering a project that has an up-front cost paid today at t =...

A company is considering a project that has an up-front cost paid today at t = 0. The project will generate positive cash flows of $50,175 a year at the end of each for the next 5 years. The project’s NPV is $87,983 and the company’s return on the project is 8.3 percent. What is the project’s payback?

A company is considering a project that has an up-front cost paid today at t =...

A company is considering a project that has an up-front cost paid today at t = 0. The project will generate positive cash flows of $59,529 a year at the end of each for the next 6 years. The project’s NPV is $89,007 and the company’s return on the project is 9.3 percent. What is the project’s payback?

Your firm is considering a project that will cost $ 4.548$4.548 million up front, generate cash...

Your firm is considering a project that will cost $ 4.548$4.548 million up front, generate cash flows of $ 3.50$3.50 million per year for 33 years, and then have a cleanup and shutdown cost of $ 6.00$6.00 million in the fourth year. a. How many IRRs does this project have? b. Calculate a modified IRR for this project assuming a discount and compounding rate of 10.0 %10.0%. c. Using the MIRR and a cost of capital of 10.0 %10.0%, would...

Subjects