Question

A company has the following investment opportunity: Time Cash Flow 0 -$1,200,000 1 600,000 2 400,000...

A company has the following investment opportunity: Time Cash Flow 0 -$1,200,000 1 600,000 2 400,000 3 250,000 4 150,000 5 150,000 The weighted average cost of capital for this company is 12%.

a. What is the net present value of this project? Based on NPV analysis, should the company accept the project? Why or why not?

b. What is the internal rate of return? Based on IRR analysis, should the company accept the project? Why or why not?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a. What is the net present value of this project? Based on NPV analysis, should the company accept the project? Why or why not?

NPV is $12978.64 which is positive thus it is recommended to invest in the project

b. What is the internal rate of return? Based on IRR analysis, should the company accept the project? Why or why not?

IRR is 12.58% which is higher than WACC of 12% thus it is recommended to invest in the project

Please dont forget to upvote

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Newex, Inc. has a capital investment opportunity with the following cash flows: Year cash flow...
1. Newex, Inc. has a capital investment opportunity with the following cash flows: Year cash flow 0 (100,000) 1 45,000 2 35,000 3 30,000 4 20,000 Which of the following is closest to the project’s payback period? a) 4 years b) 2 years c) 3.7 years d) 3.5 years e) 2.7 years 2. Zoomit Corporation has a capital investment opportunity that will cost $250,000. The cash inflows from year 1 through year 10 will be $40,000 each year. The firm’s...
A company is considering a project with the following cash flows: Time Cash Flow 0 -$100...
A company is considering a project with the following cash flows: Time Cash Flow 0 -$100 <<<<<<< negative 1 $100 2 -$100 <<<<<<< negative 3 $120 At a cost of capital of 10%: a. What is the NPV? b. What is the Modified Internal rate of Return? Should the company accept this project?
. (NPV,IRR)A company can invest $1,600,000 in a capital budgeting project that will generate the following...
. (NPV,IRR)A company can invest $1,600,000 in a capital budgeting project that will generate the following forecasted cash flows: Year Cash flow 1 $500,000 2 720,000 3 300,000 4 600,000 The company has a 13% cost of capital. a. Calculate the project’s net present value. b. Calculate the project’s internal rate of return. c. Should the firm accept or reject the project? d. What is the value added to the firm if it accepts this proposed investment?
(a) Explain why investment appraisal methods based on project cash flows are regarded as superior to...
(a) Explain why investment appraisal methods based on project cash flows are regarded as superior to earnings-based measures such as forecasted return on assets. (120 words) (b) Compare the merits of the net present value (NPV), internal rate of return (IRR) and discounted payback period methods of capital investment project appraisal, assuming the firm’s objective is to maximise the wealth of its equityholders. What conditions must apply for the net present value (NPV) and internal rate of return (IRR) methods...
2. company has been presented with the following investment opportunity. The initial investment is expected to...
2. company has been presented with the following investment opportunity. The initial investment is expected to be $380,000. The operating cash flows are expected to be $120,000 in year 1, $120,000 in year 2, $120,000 in year 3, $80,000 in year 4, $80,000 in year 5 and $50,000 in year 6. If your cost of capital is 14%, what is the NPV and IRR for the project? Should they accept?
Grey company is analyzing a project that requires an initial investment of $600,000. The project's expected...
Grey company is analyzing a project that requires an initial investment of $600,000. The project's expected cash flows are: (Year 1) $350,000, (Year 2) -$125,000, (Year 3) $500,000 and (Year 4) $400,000. 1. Grey company's WACC is 10%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): _______%. 2. If Grey company's managers select projects based on the MIRR criterion, they should accept or reject this independent project....
A project has the following cash flows: Year Cash Flow 0 $ 72,500 1 –51,500 2...
A project has the following cash flows: Year Cash Flow 0 $ 72,500 1 –51,500 2 –28,000 What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return             % What is the NPV of this project if the required return is 6 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your...
Telesis Corp is considering a project that has the following cash flows: Year Cash Flow 0...
Telesis Corp is considering a project that has the following cash flows: Year Cash Flow 0 -$1,000 1 400 2 300 3 500 4 400 The company’s weighted average cost of capital (WACC) is 10%. What are the project’s payback period (Payback), internal rate of return (IRR), net present value (NPV), and profitability index (PI)? A. Payback = 3.5, IRR = 10.22%, NPV = $1260, PI=1.26 B. Payback = 2.6, IRR = 21.22%, NPV = $349, PI=1.35 C. Payback =...
1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value...
1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $400,000...
You are considering building a shopping mall. The initial investment is ?$1.43. million. The cash flows...
You are considering building a shopping mall. The initial investment is ?$1.43. million. The cash flows are?$410,000 for year? 1,200,000 for year?2, $200,000 for year? 3, and ?$170,000 for year 4. What are the net present value? (NPV) and profitability index? (PI) of the project if the cost of capital is 12?%? Compute the internal rate of return? (IRR) for the project.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT