0 Question 3 A) A project requires the following cash outlays: $10,000 now and $5,000 a year from now. The project will give a cash return of $5,000 annually for 6 years, the first payment coming in after 3 years. The risk-free rate is 6%. If the proper discount rate is 12%, would you accept this project? B) Evaluate a project with a construction period of 3 years, an operating period of 15 years, and an initial investment of $30,000,000. The project generates annual cash flows of $7,000,000 during the operating phase. Calculate the NPV and IRR for the entire project, including both phases, using a discount rate of 10%. C) Describe the different risk and mitigation techniques that may be used in a power plant project, in controlling (a) engineering risk; (b) completion risk; and (c) market risk. 6:24 PM ✓
0 Question 3 A) A project requires the following cash outlays: $10,000 now and $5,000 a year from now. The project will give a cash return of $5,000 annually for 6 years, the first payment coming in after 3 years. The risk-free rate is 6%. If the proper discount rate is 12%, would you accept this project? B) Evaluate a project with a construction period of 3 years, an operating period of 15 years, and an initial investment of $30,000,000. The project generates annual cash flows of $7,000,000 during the operating phase. Calculate the NPV and IRR for the entire project, including both phases, using a discount rate of 10%. C) Describe the different risk and mitigation techniques that may be used in a power plant project, in controlling (a) engineering risk; (b) completion risk; and (c) market risk. 6:24 PM ✓
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 3
A) A project requires the following cash
outlays: $10,000 now and $5,000 a year
from now. The project will give a cash
return of $5,000 annually for 6 years,
the first payment coming in after 3
years. The risk-free rate is 6%. If the
proper discount rate is 12%, would you
accept this project?
B) Evaluate a project with a
construction period of 3 years, an
operating period of 15 years, and an
initial investment of $30,000,000. The
project generates annual cash flows of
$7,000,000 during the operating phase.
Calculate the NPV and IRR for the entire
project, including both phases, using a
discount rate of 10%.
C) Describe the different risk and
mitigation techniques that may be used
in a power plant project, in controlling
(a) engineering risk; (b) completion risk;
and (c) market risk.
6:24 PM ✓
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