Year Cash flow (€) 0 - Investment -? 1 150,000 2 150,000 3 4 150,000 ?...

Year	Cash flow (€)
0 - Investment	-?
1	150,000
2	150,000
3 4	150,000 ?

Some years ago X AG paid €15’000 for a vacant lot with planning permission. The plot could easily be sold today for 10 times that amount. X AG has however a project in mind that would occupy the plot and require investment of €200,000 but generate positive cash flows of €150,000 for the next 4 years. X AG will be able to sell the plot for € 100’000 at the conclusion of the project.

Calculate the relevant cash flows for years 1 through 4 and the appropriate initial investment value.
For the cash flows calculated above, suppose the firm uses the NPV decision rule. At a required return of 7 per cent, should the firm accept this project?
What if the required return was 15 percent?
What is the Cash Payback Period ? Should the firm accept if projects are required to payback within 2 years?
Calculate the PI ratio at 7 and 15 percent

Expert Solution

jeff jeffy answered 1 year ago

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