i) Estimate the net present value of this project. ii) Estimate the internal rate of return of this project. What might be some of the problems in estimating the IRR for this project?
i) Estimate the net present value of this project. ii) Estimate the internal rate of return of this project. What might be some of the problems in estimating the IRR for this project?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
You are analyzing a project with a 30-year lifetime, with the following characteristics:
● The project will require an initial investment of RM20 million and additional investments of RM5 million in year 10 and RM5 million in year 20.
● The project will generate earnings before interest and taxes of RM3 million each year (The tax rate is 40%)
● The depreciation will amount to RM500,000 each year, and the salvage value of equipment will be equal to the remaining book value at the end of year 30.
● The cost of capital is 12.5%
i) Estimate the net present value of this project.
ii) Estimate the internal rate of return of this project. What might be some of the problems in estimating the IRR for this project?
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