Question
In: Finance
#1 Suppose a project requires an initial cash outflow of $34,900. The project will last for...
#1 Suppose a project requires an initial cash outflow of $34,900. The project will last for four years with the annual cash flows given below. The required rate of return is 12%.
| Year | Cash Flows |
|---|---|
| 1 | $12,500 |
| 2 | $19,700 |
| 3 | 0 |
| 4 | &10,400 |
A)Compute the net present value of the project. Should the firm invest in this project based on net present value? Why?
B)Compute the internal rate of return. Should the firm invest in this project based on internal rate of return? Why?
C)Use a graph to show why the firm’s decisions in (1) and (2) are consistent or inconsistent. Be specific.
D)Now suppose another project’s future annual cash flows are given below with an initial cash outflow $14,900.00). The required rate of return is 12%. Using a graph to explain why you cannot use IRR for capital budgeting in this case. (You do not need to compute anything here.)
| Year | Cash Flow |
|---|---|
| 1 | $12,500 |
| 2 | $12,500 |
| 3 | $12,500 |
| 4 | $12,500 |
| 5 | $12,500 |
| 6 | $12,500 |
| 7 | -$19,700 |
| 8 | -$20,000 |
| 9 | -$20,000 |
| 10 | -$20,000 |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose a project requires an initial cash outflow of $34,900. The project will last for four...
Suppose a project requires an initial cash outflow of $34,900.
The project will last for four years with the annual cash flows
given below. The required rate of return is 12%.
(1) Compute the net present value of the project. Should the
firm invest in this project based on net present value? Why?
Year
Cash Flows
1
$12,500
2
$19,700
3
0
4
$10,400
(2) Compute the internal rate of return. Should the firm invest
in this project based on...
Suppose a project requires an initial cash outflow of $34,900. The project will last for four...
Suppose a project requires an initial cash outflow of $34,900.
The project will last for four years with the annual cash flows
given below. The required rate of return is 12%.
Year
Cash Flow
1
12,500
2
19,700
3
0
4
10,400
A) Compute the net present value of the project. Should the firm
invest in this project based on net present value? Why?
B) Compute the internal rate of return. Should the firm invest
in this project based on...
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answers to two decimals ,for example, for answer 0.8187, enter 0.82
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24.
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Suppose a project requires an initial cash outflow of $34,900.
The project will last for four years with the annual cash flows
given below. The required rate of return is 12%.
Year Cash Flow
Cash Flows
1
12,500
2
19,700
3
0
4
10,400
A) Compute the net present value of the project. Should the firm
invest in this project based on net present value? Why?
B) Compute the internal rate of...
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Kiewitt is considering a project opportunity that requires a
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This project is expected to generate cash inflows of $150 in year
1, $Y in year 2 (due to uncertainty), $250 in year 3 and $300 in
year 4. If Kiewitt requires 11% annual return for this project,
what would be the minimum expected cash flow in year 2 (what is
Y)?
A. $88.65
B. $109
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E....
An investment requires an initial cash outflow of $5,100, and it will bring in cash inflows...
An investment requires an initial cash outflow of $5,100, and it
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the next four years, respectively. What is the internal rate of
return (IRR) of this project? (Format answer to percent and rounded
to two decimals, enter your answers without %, for example, for
answer 0.1243, enter 12.43 only)
Ingram electric is considering a project with an initial cash outflow of $800000. this project is...
Ingram electric is considering a project with an initial cash
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A Corporation is deciding whether to engage in a 2-year project that requires an initial cash outflow of I (CF0) = $2,000,000
A Corporation is deciding whether to engage in a 2-year project
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to be another cash outflow of $2,722,500. Altogether there are
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What is the net present value of a project that has an initial cash outflow of...
What is the net present value of a project that has an initial
cash outflow of $-13,000, at time 0, and the following cash flows
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SIGNS OR COMMAS IN YOUR ANSWER. ENTER YOUR ANSWER TO THE NEAREST
DOLLAR (e.g. 1250). Year Cash Flows 1 $3,950 2 $3,750 3 $5,900 4
$6,400
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