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 2 years agoRelated Solutions
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