A project will produce an operating cash flow of $15,200 a year for four years. The...

A project will produce an operating cash flow of $15,200 a year for four years. The initial cash investment in the project will be $50,000. The net after-tax salvage value is estimated at $4,000 and will be received during the last year of the project’s life. What is the internal rate of return for this project? Should the project be accepted if the cost of capital is 10%?

Group of answer choices

8.31%; No, project should be rejected

10.81%; Yes, project should be accepted

8.31%; Yes, project should be accepted

10.81%; No, project should be rejected

10.25%; Yes, project should be accepted

Expert Solution

Ans 10.81%; No, project should be rejected

Project must be rejected when IRR exceed cost of capital

Year	Project Cash Flows (i)	DF@ 5%	DF@ 5% (ii)	PV of Project ( (i) * (ii) )	DF@ 15% (iii)	PV of Project ( (i) * (iii) )
0	-50000	1	1	(50,000.00)	1	(50,000.00)
1	15200	1/((1+5%)^1)	0.952381	14,476.19	0.870	13,217.39
2	15200	1/((1+5%)^2)	0.907029	13,786.85	0.756	11,493.38
3	15200	1/((1+5%)^3)	0.863838	13,130.33	0.658	9,994.25
4	19200	1/((1+5%)^3)	0.822702	15,795.89	0.572	10,977.66
		NPV	7,189.26	NPV	(4,317.32)

	IRR =	Ra + NPVa / (NPVa - NPVb) * (Rb - Ra)
		5% + 7189.26 / (7189.26 + 4317.32)*10%
		10.81%

jeff jeffy answered 1 year ago

A project will produce an operating cash flow of $295,000 a year for four years. The...

A project will produce an operating cash flow of $295,000 a year for four years. The initial cash outlay for equipment will be $721,000. The net aftertax salvage value of $72,000 will be received at the end of the project. The project requires $79,000 of net working capital that will be fully recovered when the project ends. What is the net present value of the project if the required rate of return is 15 percent? $114,372 $121,017 $128,553 $136,764 $144,915

A project will produce an operating cash flow of $91,500 a year for three years. The...

A project will produce an operating cash flow of $91,500 a year for three years. The initial cash outlay for equipment will be $188,000. The net aftertax salvage value of $17,000 will be received at the end of the project. The project requires $52,000 of net working capital up front that will be fully recovered. What is the net present value of the project if the required rate of return is 14 percent? A. $22,318.76 B. $19,002.37 C. $15,450.93 D....

A project will produce cash inflows of $1,750 a year for four years. The project initially...

A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of return is 14.75%? -$1,306.18 -$935.56 $5,474.76 $1,011.40

4-A project will produce cash inflows of $1,750 a year for four years. The project initially...

4-A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of return is 13.75%? 5-What is the net present value of a project that has an initial cash outflow of $-11,500, at time 0, and the following...

Dorel Industries is considering an investment project that will produce an operating cash flow of $407,000...

Dorel Industries is considering an investment project that will produce an operating cash flow of $407,000 a year for five years. The initial cash outlay for equipment will be $1,318,000. An aftertax salvage value of $105,440 for the equipment will be received at the end of the project. The project requires $197,000 of net working capital that will be fully recovered. What is the net present value of the project if the required rate of return is 14 percent? $98,043.66...

USP Company is considering an investment project that will produce an operating cash flow of $94,000...

USP Company is considering an investment project that will produce an operating cash flow of $94,000 a year for three years. The initial cash outlay for equipment will be $201,000. The net aftertax salvage value of $17,000 will be received at the end of the project. The project requires $32,500 of net working capital up front that will be fully recovered when the project ends. What is the net present value of the project if the required rate of return...

Initial Cash flow investment Project A $5 million $2 million per year for four years Project...

Initial Cash flow investment Project A $5 million $2 million per year for four years Project B $3 million $1 million per year for five years Project C $2 million $1 million per year for four years Project D $3 million $1.5 million per year for three years An investor has a budget of $5 million. He can invest in the projects shown above. If the cost of capital is 6%, what investment or investments should he make? Select one:...

operating cash flow. find the operating cash flow for the year for robinson and sons if...

operating cash flow. find the operating cash flow for the year for robinson and sons if it had sales of $81,200,000,,, cost of goods of $35,500,000, sales and administrative costs of $6,200,000, depreciation expense of $7,000,000, and a tax rate 0f 30%. the operating cash flow is ....... (round to the nearest dollar)

Operating cash flow.??Find the operating cash flow for the year for Harper? Brothers, Inc. if it...

Operating cash flow.??Find the operating cash flow for the year for Harper? Brothers, Inc. if it had sales revenue of $308,600,000?, cost of goods sold of $135,600,000?, sales and administrative costs of $39,300,000?, depreciation expense of $65,700,000?, and a tax rate of 40%.

A project will have annual operating cash flows of $30,900 for four years. At the beginning...

A project will have annual operating cash flows of $30,900 for four years. At the beginning of the project, net working capital of $103,600 will be needed. Only $17,150 of this amount will be recovered at the end. Ignoring taxes, what is the project's NPV if the required return is 6.50%? Question 15 options: $14,029 $14,419 $14,809 $15,199 $15,588

Question