Question

In: Finance

suppose a company is considering an investment with an initial cost of $100m. Our forecasts suggest...

suppose a company is considering an investment with an initial cost of $100m.
Our forecasts suggest that the project will produce operating cash flow of $15m per year and free cash flow of $10m per year for the next 15 years. We’ve been asked to evaluate it using a required return of 5%.

part 1: calculate the NPV of this project and interpret the results. what conculsions can you draw from this estimate?

Part 2: calculate the internal rate of return of this project and interpret your result. what conculsions can you draw from this estimate?

Solutions

Expert Solution

NPV in millions 3.80
IRR 5.56%

The project is viable since NPV is positive and IRR is more than the required rate of return.

Workings

Year Cash flows
in millions
0 -100
1 10
2 10
3 10
4 10
5 10
6 10
7 10
8 10
9 10
10 10
11 10
12 10
13 10
14 10
15 10

jeff jeffy answered 6 months ago
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