Company ABC received a contract from company XYZ, worth $460 million to build a product. XYZ will pay $50 million when the contract is signed, another $360 million at the end of the first year, and the $50 million balance at the end of second year. The expected cash outflows required to produce the product are estimated to be $150 million now, $95 million the first year, and $218 million the second year. The firm’s MARR is 27% for this project.
a) Compute the values of i* for this project.
b) Calculate IRR. Is the project acceptable?
0 | 1 | 2 | |
Cashflow | $ (100.00) | $ 265.00 | $ (168.00) |
Present Value | $ (100.00) | $ 208.66 | $ (104.16) |
Net Present Value | $ 4.5012 | ||
IRR | 5.0% |
there will be two values for IRR 5% and 60%
Company should accept this project because NPV is positive at 27% MARR.
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