Question

Anderson International is interested in investing a project in Erewhon with the following projected cash flows:...

Anderson International is interested in investing a project in Erewhon with the following projected cash flows:

Year 0--> $ -1,000,000

Year 1--> $ 250,000

Year 2--> $ 300,000

Year 3--> $ 350,000

Year 4--> $500,000

One problem is that the Erewhon government has declared that all cash flows created by a foreign company must be reinvested in Erewhon for TWO years at the rate of 4%. Anderson's required rate of return is 10%. Show all future cash flows of the project under the investment policy (in Erewhon) and calculate the NPV of the project.

Homework Answers

Answer #1
Year CF Acutal CF
0 -1,000,000 -1,000,000
1 250,000 0
2 300,000 0
3 350,000 270,400
4 500,000 324,480
5 378,560
6 540,800
NPV ($34,896.79)

As the cash flows will be invested 4% for two years, forecast the actual cash flow from the project for a foreign firm.

Actual CF = CF x (1 + 4%)^2, two years later

NPV = CF0 + CF3 / (1 + r)^3 + CF4/ (1 + r)^4 + CF5 / (1 + r)^5 + CF6 / (1 + r)^6

= -1,000,000 + 270,400 / 1.1^3 + 324,480 / 1.1^4 + 378,560 / 1.1^5 + 540,800 / 1.1^6

= -34,896.79

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
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash...
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$590,000 1 220,000 2 163,000 3 228,000 4 207,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these...
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash...
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$576,000    1 206,000    2 149,000    3 214,000    4 193,000    All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year....
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash...
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$585,000    1 215,000    2 158,000    3 223,000    4 202,000    All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year....
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash...
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$582,000    1 212,000    2 155,000    3 220,000    4 199,000    All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year....
Butler International Limited is evaluating a project in Erewhon. The project will create the following cash...
Butler International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$ 1,230,000 1 405,000 2 470,000 3 365,000 4 320,000    All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate...
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?
Lepton Industries has a project with the following projected cash​ flows: Initial cost: $470,000 Cash flow...
Lepton Industries has a project with the following projected cash​ flows: Initial cost: $470,000 Cash flow year one: $120,000 Cash flow year two: $300,000 Cash flow year three: $193,000 Cash flow year four: $120,000 a. Using a discount rate of 11% for this project and the NPV​ model, determine whether the company should accept or reject this project. b. Should the company accept or reject it using a discount rate of 14%? c. Should the company accept or reject it...
Anderson Systems is considering a project that has the following cash flow and WACC data. What...
Anderson Systems is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected. WACC: 11.00% Year 0 1 2 3 Cash flows -$1,000 $500 $500 $500 a. 0241.82 b. 0257.35 c. 0195.23 d. 0259.57 e. 0221.86
Company ABC is considering a project with the following projected cash flows (in thousands): Year 0:...
Company ABC is considering a project with the following projected cash flows (in thousands): Year 0: -$60 Year 1: 10 Year 2: 20 Year 3: 30 Year 4: 40 Year 5: -$25 a. Assuming a 10% hurdle rate, the NPV for the project is b. Assuming a 10% hurdle rate, the IRR for company ABC project is: c. Based on the NPV calculation (10% hurdle rate) , should company ABC undertake the project d. Based on the IRR calculation (10%...
A project costs $500,000 upfront and has the following cash flows: year 1. $100,000 year 2....
A project costs $500,000 upfront and has the following cash flows: year 1. $100,000 year 2. $200,000 year 3. $300,000 year 4. $450,000 year 5. $550,000 calculate the NPV using an 11% discount rate. If this project is independent of other projects the company is considering and the firm has enough funds, should this project be accepted?