Question

Alcan, Inc. is considering a project that has an initial outlay or cost of $220,000. The...

Alcan, Inc. is considering a project that has an initial outlay or cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000, and $80,000, respectively. Alcan uses the internal rate of return method to evaluate projects. Will Alcan accept the project if its hurdle rate is 12%?

Alcan will not accept this project because its IRR is about 7.63%.

Alcan will not accept this project because its IRR is about 4.66%.

Alcan will not accept this project because its IRR is about 9.74%.

Alcan will not accept this project because its IRR is about 6.50%.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer: The correct option is "Alcan will not accept this project because its IRR is about 6.50%".
We can calculate the internal rate of return (IRR) in excel using the cash flows given in he question. As the initial outlay or cost is a cash outflow, we have taken it as negative in excel.
Given that the hurdle rate is 12%, a project is accepted if the IRR is greater than the hurdle rate.


We get the value of IRR=6.50%
Here, the project should not be accepted as the IRR is less than hurdle rate.

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
Flynn, Inc. is considering a four-year project that has an initial after-tax outlay or after-tax cost...
Flynn, Inc. is considering a four-year project that has an initial after-tax outlay or after-tax cost of $80,000. The future after-tax cash inflows from its project for years one, two, three, and four are $40,000, $40,000, $30,000, and $30,000, respectively. Flynn uses the internal rate of return method to evaluate projects. What is the approximate IRR for this project? The IRR is less than 12%. The IRR is between 12% and 20%. The IRR is about 24.55%. The IRR is...
Cold One Brewery is considering a project that has an initial after-tax outlay or after tax...
Cold One Brewery is considering a project that has an initial after-tax outlay or after tax cost of $700,000. The respective future cash inflow’s from this four-year project for years 1 through 4 are: $195,000, $168,000, $230,000, $280,000, respectively. Cold one has a cost of capital of 11%. Will cold one accept this project? Rejects this project because because NPV is below $-100,000 Rejects this project because the NPVis between -$20,000 and -$50,000 Accepts this project because the NPV is...
1. Consider the following three-year project. The initial after-tax outlay or after-tax cost is $1,500,000. The...
1. Consider the following three-year project. The initial after-tax outlay or after-tax cost is $1,500,000. The future after-tax cash inflows for years 1, 2, 3 and 4 are: $800,000, $800,000, $300,000 and $100,000, respectively. What is the payback period without discounting cash flows? a. 1.875 years b. 2.0 years c. 3.5 years d. 4.125 years 2. Carvic, Inc. is considering a four-year project that has an initial outlay or cost of $100,000. The respective future cash inflows from its project...
A firm with a cost of capital of 10% is evaluating two independent projects utilizing the...
A firm with a cost of capital of 10% is evaluating two independent projects utilizing the internal rate of return technique. Project X has an initial investment of $70,000 and cash inflows at the end of each of the next five years of $25,000. Project Z has an initial investment of $120,000 and cash inflows at the end of each of the next four years of $35,000. The firm should ________. accept Project X and reject project Z accept both...
ABC company is considering a project that calls for an initial cash outlay of $50,000. The...
ABC company is considering a project that calls for an initial cash outlay of $50,000. The expected net cash inflows from the project are $7,791 for each of 10 years. What is the IRR of the project?
ABC company is considering a project that calls for an initial cash outlay of $50,000. The...
ABC company is considering a project that calls for an initial cash outlay of $50,000. The expected net cash inflows from the project are $7,791 for each of 10 years. What is the IRR of the project?
A is considering the investment in a project that has an initial cash outlay followed by...
A is considering the investment in a project that has an initial cash outlay followed by a series of net cash inflows. The business applied the NPV and IRR methods to evaluate the proposal but, after the evaluation had been undertaken, it was found that the correct cost of capital figure was lower than that used in the evaluation. What will be the effect of correcting for this error on the NPV and IRR figures? Effect on NPV IRR a)...
Dorati Inc. is considering two mutually exclusive projects.  Dorati used a 15% required rate of return to...
Dorati Inc. is considering two mutually exclusive projects.  Dorati used a 15% required rate of return to evaluate capital expenditure projects.  If the two projects have the costs and cash flows shown below, determine the NPV for each. Year                             Project S                                   Project T    0                                -$70,000                                   -$100,000    1                                  $50,000                                      $60,000    2                                  $60,000                                      $70,000    3                                                                                    $80,000                        4                                                                                    $90,000
A company s considering a project which requires the initial outlay of $300,000 which includes both...
A company s considering a project which requires the initial outlay of $300,000 which includes both an after-tax salvage from the old asset of $12,000 and an additional working capital investment of $8,000. The 12-year project is expected to generate annual incremental cash flows of $54,000 and have an expected terminal value at the end of the project of $20,000. The cost of capital is 15 percent, and the company's marginal tax rate is 40 percent. Calculate the net present...
Two mutually exclusive projects have an initial cost of $60,000 each. Project A produces cash inflows...
Two mutually exclusive projects have an initial cost of $60,000 each. Project A produces cash inflows of $30,000, $37,000, and $20,000 for Years 1 through 3, respectively. Project B produces cash inflows of $80,000 in Year 2 only. The required rate of return is 10 percent for Project A and 11 percent for Project B. Which project(s) should be accepted and why? Project A, because it has the higher required rate of return. Project A, because it has the larger...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT