Question

In: Accounting

Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000...

Project Black Swan requires an initial investment of $115,000. It has positive cash flows of $140,000 for each of the next two years. Because of major demolition and environmental clean-up costs, cash flow for the third and final year of the project is $(170,000). If the company 's required rate of return is 12%, the project should be

A) rejected because the IRR is less than 12%.

B) accepted because the NPV is positive at 12%.

C) rejected because there may be more than one IRR.

D) the project is unacceptable at any discount rate.

Solutions

Expert Solution

Year Cash Flows PVIF @ 12% Pv of Cash Flows
1                     1,40,000             0.8929           1,25,000
2                     1,40,000             0.7972           1,11,607
3                  (1,70,000)             0.7118         (1,21,003)
Total           1,15,605
Initial Investment 1,15,000
PV of Cash Inflows 1,15,605
Net Present Value 605

Correct Answer - Option B) Accepted because the NPV is positive at 12%.

ekkarill92 answered 1 year ago
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