Monster Inc. is considering a project with the following cash flows: Co Ci_ C2 C3 C4 (RM25,000) RM10,000 RM12,000 RM5,000 RM8,000 The company is reluctant to consider projects with paybacks of more than three years. If projects pass the payback screen, they are considered further by means of the NPV and IRR methods. The firm's cost of capital is 9%. a) What is the project's payback period and discounted payback period? Should the project be considered further? b) What is the project's NPV? Does NPV indicate acceptance on a stand-alone basis? c) Calculate the project's IRR by using an iterative approach. Start by using the cost of capital and the NPV calculation from part a. Does IRR indicate acceptance on a stand-alone basis?
Monster Inc. is considering a project with the following cash flows: Co Ci_ C2 C3 C4 (RM25,000) RM10,000 RM12,000 RM5,000 RM8,000 The company is reluctant to consider projects with paybacks of more than three years. If projects pass the payback screen, they are considered further by means of the NPV and IRR methods. The firm's cost of capital is 9%. a) What is the project's payback period and discounted payback period? Should the project be considered further? b) What is the project's NPV? Does NPV indicate acceptance on a stand-alone basis? c) Calculate the project's IRR by using an iterative approach. Start by using the cost of capital and the NPV calculation from part a. Does IRR indicate acceptance on a stand-alone basis?
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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Transcribed Image Text:Monster Inc. is considering a project with the following cash flows:
Со
C1_
C4
(RM25,000) RM10,000
RM12,000
RM5,000
RM8,000
The company is reluctant to consider projects with paybacks of more than three
years. If projects pass the payback screen, they are considered further by means
of the NPV and IRR methods. The firm's cost of capital is 9%.
a) What is the project's payback period and discounted payback period? Should
the project be considered further?
b) What is the project's NPV? Does NPV indicate acceptance on a stand-alone
basis?
c) Calculate the project's IRR by using an iterative approach. Start by using the
cost of capital and the NPV calculation from part a.
Does IRR indicate
acceptance on a stand-alone basis?
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