Question

can a project have negative cash flows for the first few years before having positive cash...

can a project have negative cash flows for the first few years before having positive cash flows ?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Yes, it is possible to have negative cash-flows for the few first years before positive cash-flows

The following can be the possible cases:

(a) The project has a gestation period for few years. In the gestation period, the project does not produce any revenue but requires capital expenditure and costs to develop the infrastructure

(b) The project may require some time to achieve a minimum capacity utilization beyond which the project starts generating positive cash flows

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
In projects with unconventional cash flows (negative and positive cash flows throughout the life of the...
In projects with unconventional cash flows (negative and positive cash flows throughout the life of the project), the phenomenon of multiple rates of return can occur. In these cases, the internal rate of return (IRR) is the most appropriate method of project evaluation. a. True b. False
Suppose a project generates positive cash flows for the next 12 years and the project’s NPV...
Suppose a project generates positive cash flows for the next 12 years and the project’s NPV is $110,000 when discount rate is 6%. Also suppose that the IRR=8.7%. Which of the following may be a possible value for NPV when discount rate is 7.4%? A. -$25,000 B. 0 C. $25,000 D. $125,000 E. None of the above
Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all...
Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all other cash flows are positive). Which of the following statements is most correct? Question 2 options: All else equal, a project's IRR increases as the cost of capital declines. All else equal, a project's NPV increases as the cost of capital declines. All else equal, a project's MIRR is unaffected by changes in the cost of capital. Answers a and b are correct. Answers...
Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all...
Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all other cash flows are positive). Which of the following statements is most correct? All else equal, a project's IRR increases as the cost of capital declines. All else equal, a project's NPV decreases as the cost of capital declines. All else equal, a project's MIRR is unaffected by changes in the cost of capital. Answers a and b are correct. Answers b and c...
A capital investment project requires an initial investment of $100 and generates positive cash flows, $50...
A capital investment project requires an initial investment of $100 and generates positive cash flows, $50 and $100, at the end of the first and second years, respectively. (There is no cash flow after the second year) The firm uses a hurdle rate of 15% for projects of similar risk. Determine whether you should accept or reject the project based on NPV. Determine whether you should accept or reject the project based on IRR. Determine whether you should accept or...
Last month, Lloyd's Systems analyzed the project whose cash flows are shown below. However, before the...
Last month, Lloyd's Systems analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative, in which case it should be rejected. Old WACC: 10.00%...
A project is expected to have annual cash flows of $36,800, $24,600, and –$9,200 for Years...
A project is expected to have annual cash flows of $36,800, $24,600, and –$9,200 for Years 1 to 3, respectively. The initial cash outlay is $44,500 and the discount rate is 11 percent. What is the modified IRR?
Two projects have the same initial cost. Project A has estimated cash flows of $1,000, $2,000,...
Two projects have the same initial cost. Project A has estimated cash flows of $1,000, $2,000, $3,000, $4,000 at the end of years 1 to 4 respectively. Project B has estimated cash flows of $4,000, $3,000, $2,000, $1,000 at the end of years 1 to 4 respectively. Which project will have the greater NPV assuming a positive discount rate? Select one: a. The NPV will be the same for both Project A and Project B b. Project B c. Project...
Project A would require an initial outlay of $60,000 and is expected to generate positive cash...
Project A would require an initial outlay of $60,000 and is expected to generate positive cash flows in years one through six of $18,838; $12,133; $17,123; $13,007; $17,559; and $17,907. Using a discount rate of 13.2%, what is the NPV of this project? If the answer is negative, include the negative sign, and show the answer to the nearest dollar.
Project A would require an initial outlay of $56,000 and is expected to generate positive cash...
Project A would require an initial outlay of $56,000 and is expected to generate positive cash flows in years one through six of $16,542; $14,677; $15,035; $19,167; $19,796; and $12,120. Using a discount rate of 17.1%, what is the NPV of this project? If the answer is negative, include the negative sign, and show the answer to the nearest dollar.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT