Question
In: Finance
A Corporation is deciding whether to engage in a 2-year project that requires an initial cash outflow of I (CF0) = $2,000,000
A Corporation is deciding whether to engage in a 2-year project that requires an initial cash outflow of I (CF0) = $2,000,000. CF1 is expected to be a cash inflow of $4,670,000 and CF2 is expected to be another cash outflow of $2,722,500. Altogether there are three cash flows—an initial cash outflow, followed by a cash inflow, followed by a second cash outflow at the end of the 2-year project life.
A. Determine the multiple IRR’s by plotting the project’s NPV Profile and observing where the profile crosses the horizontal axis. Label the axes and all the vertical and horizontal intercepts.
B. Should the corporation accept this project at:
i. k = 10%?
ii. k = 15.5%?
iii. k = 25%?
Explain your reasoning in each of these three cases.
Solutions
Expert Solution
Answer 1
Answer 2
Comment
As we can see that on discount rate of 15.5% NPV is possitive, therefore if Discount Rate is 15.5% then option is viable. However NPV is very less almost insignificant, hence Corporation can go for any other investment alternative also.
jeff jeffy answered 2 years agoRelated Solutions
A Corporation is deciding whether to engage in a 2-year project that requires an initial cash...
A Corporation is deciding whether to engage in a
2-year project that requires an initial
cash outflow of I
(CF0) = $2,000,000. CF1 is
expected to be a cash inflow of
$4,670,000 and CF2 is expected to be
another cash outflow of
$2,722,500. Altogether there are three cash
flows—an initial cash outflow, followed by a cash inflow, followed
by a second cash outflow at the end of the 2-year project life.
Determine the multiple IRR’s by
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#1 Suppose a project requires an initial cash outflow of $34,900. The project will last for...
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$34,900. The project will last for four years with the annual cash
flows given below. The required rate of return is 12%.
Year
Cash Flows
1
$12,500
2
$19,700
3
0
4
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invest in this project based on net present value? Why?
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Year
Cash Flow
1
12,500
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