Question

In: Finance

A project requires an initial investment of $1.2 million. It expects to generate a perpetual cash...

A project requires an initial investment of $1.2 million. It expects to generate a perpetual cash flow. The first year cash flow is expected at $100,000. The cash flows are then expected to grow at 1.25% forever. If the cost of capital for this project is 11%, what is the project's NPV?

Group of answer choices

-$0.480 million

$0.265 million

$7,177 million

-$0.174 million

-$0.265 million

$0.174 million

Solutions

Expert Solution

NPV = [Year 1 cash flow / (cost of capital - growth rate)] - Initial investment

NPV = [0.1 / (0.11 - 0.0125)] - 1.2

NPV = [0.1 / 0.0975] - 1.2

NPV = 1.02564 - 1.2

NPV = -$0.174 million

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

A project requires an initial investment of $1.2 million. It expects to generate a perpetual cash...
A project requires an initial investment of $1.2 million. It expects to generate a perpetual cash flow. The first year cash flow is expected at $100,000. The cash flows are then expected to grow at 1.25% forever. The appropriate cost of capital for this project is 11%. What is the project's IRR and should it be accepted based on the IRR rule? Group of answer choices IRR is 9.6%; project should not be accepted IRR is 9.6%; project should be...
An investment project requires an initial outlay of $100,000, and is expected to generate annual cash...
An investment project requires an initial outlay of $100,000, and is expected to generate annual cash inflows of $28,000 for the next 5 years. The cost of capital is 12 percent. Determine the internal rate of return for the project (to the nearest tenth of one percent). a. 12.0% b. 12.6% c. 3.6% d. 12.4%
A project requires an initial investment of $200,000 and expects to produce a cash flow before...
A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of $120,000 per year for two years (i.e., cash flows will occur at t = 1 and t = 2). The corporate tax rate is 21 percent. The assets will depreciate using the MACRS 3-year schedule: (t = 1, 33%); (t = 2: 45%); (t = 3: 15%); (t = 4: 7%). The company's tax situation is such that it can use all...
A project requires an initial investment of $300,000 and expects to produce an after-tax operating cash...
A project requires an initial investment of $300,000 and expects to produce an after-tax operating cash flow of $150,000 per year for three years. The asset value will be depreciated using straight-line depreciation over three years.At the end of the project, the asset could be sold for a price of $100,000. Assume a 21% tax rate and 15% cost of capital. Calculate the NPV of the project.
A project requires $1000 to be invested today, and is expects to generate cash flows in...
A project requires $1000 to be invested today, and is expects to generate cash flows in the future years: CF1=$500, CF2=$400, CF3=$200. What is the REGULAR payback period of this project? a) 2.5 years b) 3 years c) 1.25 years d) 0.5 years e) Never pay back the cost
3. A 5-year project requires an initial investment of $28 million. It generates an annual cash...
3. A 5-year project requires an initial investment of $28 million. It generates an annual cash flow of $9 million. The unlevered cost of equity is 20%. A loan of $22.5 million at a rate of 10%. Principal will be repaid in a lump sum when project ends. However, the lender will extend the loan for only three years. The firm’s tax rate is 30%. Calculate the project’s adjusted present value.
Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows...
Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows of $2, $4 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following statements is true? a. The firm should reject the project, as the IRR is lower than the WACC. b. The firm should accept the project, as the IRR is higher than the WACC. c. The firm should accept the project, as the...
Assume a new project requires an initial investment of $6 million dollars, with ensuing cash flows...
Assume a new project requires an initial investment of $6 million dollars, with ensuing cash flows of $1, $3 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following statements is true? a.) The firm should accept the project, as the IRR is lower than the WACC. b.) The firm should reject the project, as the IRR is higher than the WACC. c.) The firm should accept the project, as the...
Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows...
Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows of $2, $4 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following statements is true? The firm should reject the project, as the IRR is lower than the WACC. The firm should accept the project, as the IRR is higher than the WACC. The firm should accept the project, as the NPV is positive....
Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows...
Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows of $2, $4 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following statements is true? The firm should reject the project, as the IRR is lower than the WACC. The firm should accept the project, as the IRR is higher than the WACC. The firm should accept the project, as the NPV is positive....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT