assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59 1 4 2 5 3 6 4 7.33 5 8 6 8.25 Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.Use interest rate 17%

assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59 1 4 2 5 3 6 4 7.33 5 8 6 8.25 Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.Use interest rate 17%

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 1IEE

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From Part A above, assume that the bank decided to give a loan of $ 59 million to Zenith Corporation (recorded for initial year). Zenith-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59 1 4 2 5 3 6 4 7.33 5 8 6 8.25 Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume discount rate 13% This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.
From Part A above, assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59 1 4 2 5 3 6 4 7.33 5 8 6 8.25 Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume interesr rate is 13% This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.
Beyer Company is considering the purchase of an asset for $240,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Net cash flows Year 0 1 2 3 4 5 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.) $ Cash Inflow (Outflow) (240,000) Year 1 $60,000 Payback period = Year 2 $36,000 Cumulative Net Cash Inflow (Outflow) Year 3 $60,000
A company undertakes a multi-year project that requires multiple annual payments. First payment starts at the end of year 3 in the amount of $100,000. It will then increase by $10,000 each subsequent year and the last payment is made at year 10 in the amount of $170,000. The interest rate is fixed at 7% a year. What is the present worth (t=0) of this series of cash flows (arithmetic series)?
PART B Assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59.00 1 4.00 2 5.00 3 6.00 4 7.33 5 8.00 6 8.25 Calculate the Payback period Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume any discount rate This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the
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