Corporate Finance
Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 27QAP
Summary Introduction

Adequate information:

    YearCash Flows
    0-$945,000
    1$295,000
    2$325,000
    3$413,000
    4$240,000

Reinvestment rate = 4%

Required rate of return = 11%

To determine: NPV and IRR of the project. Also, explain whether the IRR of the project is MIRR.

Introduction: IRR is the discounting rate that produces zero NPV, that is, the value of cash inflows at the beginning of the investment period is the same as the value of cash outflows at the beginning of the period.

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InterCell Company wants to participate in the upcoming World's Fair in Korea. To participate, the firm needs to spend $1.5 million in year 0 to develop a showcase. The showcase will produce a cash flow of $3.75 million at the end of year 1. Then at the end of year 2, $2.31 million must be expended to restore the land on which the showcase was presented to its original condition. Therefore, the project's expected net cash flows are as follows (in thousands of dollars): (a) Plot the present worth of this investment as a function of i.(b) Compute the i*s for this investment. Is this a pure investment?( c) Would you accept this investment at MARR= 14 % ?
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Chapter 5 Solutions

Corporate Finance

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