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How do I solve this? Need to show work. Questions: #1 - #3: A small factory...

How do I solve this? Need to show work.

Questions:

#1 - #3: A small factory that makes electrical components is considering a project which might generate future cash flows as follows.  The company will make a decision whether they will undertake this project based on the Net Present Value analysis/Payback period/IRR method.

Project:

Initial investment = $100 million

Net cash flows   Year 1             Year 2              Year 3              Year 4  

($million)                 34                30                           40                             36                          

1. What is the payback period of this project?  If the hurdle period for the payback period method to evaluate this project is 4 years, what is your decision on this project?

Answer: Around 3 years and accept

2. What is the Net Present Value of these cash flows assuming that the WACC (can used as a discount rate) of the factory is 10%?  What is your decision on this project based on the result from NPV of this project?   

Answer: $10.346 million and accept

3. What is the IRR (Internal Rate of Return) of this project?  If the WACC of the factory is 10%, what is your decision on this project?

Answer: 14.58% and accept

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