Question

An investment project has the following cash flows: initial cost = $1,000,000; cash inflows = $200,000...

An investment project has the following cash flows: initial cost = $1,000,000; cash inflows = $200,000 per year for eight years. If the required rate of return is 12%: i) Compute the project’s NPV. What decision should be made using NPV? ii) Compute the project’s IRR. How would the IRR decision rule be used for this project, and what decision would be reached?

Homework Answers

Answer #1

Based on NPV, the project should be rejected as NPV is negative

IRR for the project is 11.8145%

Here, IRR being less than required rate of return, the project should be rejected

IRR (11.8145%) < Rate of Return required (12%)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An investment project has the following cash flows: Initial investment of $1,000,000 and cash flows starting...
An investment project has the following cash flows: Initial investment of $1,000,000 and cash flows starting in the first year through year 4 of $300,000 each. If the required rate of return is 12% What is the present value for each cash flow? What is the NPV and what decision should be made using the NPV?
A company is considering a project with the following cash flows: Initial Investment = -$200,000 Cash...
A company is considering a project with the following cash flows: Initial Investment = -$200,000 Cash Flows: Year 1 = $140,000                      Year 4 = $80,000                      Year 5 = $120,000 If the appropriate discount rate is 12%, what is the NPV of this project?
A company is considering a project with the following cash flows: Initial Investment = -$200,000 Cash...
A company is considering a project with the following cash flows: Initial Investment = -$200,000 Cash Flows: Year 1 = $140,000 Year 4 = $80,000 Year 5 = $120,000 If the appropriate discount rate is 12%, what is the NPV of this project?
A project has an initial cost of $15,000 and produces cash inflows of $2,000 forever. Compute...
A project has an initial cost of $15,000 and produces cash inflows of $2,000 forever. Compute the payback period, NPV, IRR, and PI if the required rate of return is 10%.
A firm is considering investing in a project that requires an initial investment of $200,000 and...
A firm is considering investing in a project that requires an initial investment of $200,000 and is expected to produce cash inflows of $60,000, $80,000, and $100,000 in first, second, and third years. There will be no residual value. The firm applies a discount rate of 10%. Discount factors for Year 1, 2 and 3 are 0.909, 0.826, and 0.751 respectively. Required: i) Calculate the NPV of the project. ii) Explain the meaning of NPV and its advantages as an...
A firm is considering investing in a project that requires an initial investment of $200,000 and...
A firm is considering investing in a project that requires an initial investment of $200,000 and is expected to produce cash inflows of $60,000, $80,000, and $100,000 in first, second, and third years. There will be no residual value. The firm applies a discount rate of 10%. Discount factors for Year 1, 2 and 3 are 0.909, 0.826, and 0.751 respectively. Required: i) Calculate the NPV of the project. ii) Explain the meaning of NPV and its advantages as an...
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.
You are considering a project with an initial cash outlay of $100,000 and expected free cash...
You are considering a project with an initial cash outlay of $100,000 and expected free cash flows of $23,000 at the end of each year for 6 years. The required rate of return for this project is 10 percent. a. What is the project’s payback period? b. What is the project’s discounted payback period? c. What is the project’s NPV ? d. What is the project’s PI ? e. What is the project’s IRR ? f. What is the project’s...
A project requires an initial investment of $2,200 and grants cash flows of $1,300 at the...
A project requires an initial investment of $2,200 and grants cash flows of $1,300 at the end of year 1, $ 950 at the end of year 2, $ 1,900 at the end of year 3 and $ 850 at the end of year 4. At a discount rate of 32%, calculate NPV and IRR. What decision should be made by the company? please provide me the answer as soon as possible
A project requires an initial investment of $200,000 and is expected to provide a single cash...
A project requires an initial investment of $200,000 and is expected to provide a single cash inflow of $350,000 after 5 years. What is the project’s internal rate of return?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT