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Anderson International Limited is evaluating a project in Erewhon. The project will create cash flows as...

Anderson International Limited is evaluating a project in Erewhon. The project will create cash flows as listed in the table below. All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 10%. The required return is 15%. What is the project NPV?

Year Cash Flow
0 -500
1 243
2 125
3 266
4 121

$43.39

$104.89

$25.99

*PLEASE SHOW EXCEL FORMULAS IF USED OR WRITE IT OUT FULLY*

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Expert Solution

NPV = 25.99 see table below

Discount rate 15.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
                 (500.000) 0                                 (500.00)                             (500.00)
                               -   1                                            -                               (500.00)
                   267.300 2                                   202.12                           (297.883)
                   137.500 3                                     90.41                           (207.474)
                   292.600 4                                   167.29                             (40.179)
                   133.100 5                                     66.17                                  25.99

jeff jeffy answered 1 year ago
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