1. A project, runs for 5 years, it has an upfront cost of $600,000, and generates total mental cash flows of $180,000 beginning in one year's time, which is projected to gi 2% per year, for the life of the project. The cost of capital of the project is 12%. (a) What is the NPV and IRR of the project? (b) What is the NPV of the project if the discount rate halves and doubles? (c) Plot the NPV of the project if the growth rate of the project was not esti correctly by the cash management team. Calculate the NPV if the growth between -4% and 4% in whole percentage point increments.
1. A project, runs for 5 years, it has an upfront cost of $600,000, and generates total mental cash flows of $180,000 beginning in one year's time, which is projected to gi 2% per year, for the life of the project. The cost of capital of the project is 12%. (a) What is the NPV and IRR of the project? (b) What is the NPV of the project if the discount rate halves and doubles? (c) Plot the NPV of the project if the growth rate of the project was not esti correctly by the cash management team. Calculate the NPV if the growth between -4% and 4% in whole percentage point increments.
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:4. A project, runs for 5 years, it has an upfront cost of $600,000, and generates total incre-
mental cash flows of $180,000 beginning in one year's time, which is projected to grow at
2% per year, for the life of the project. The cost of capital of the project is 12%.
(a) What is the NPV and IRR of the project?
(b) What is the NPV of the project if the discount rate halves and doubles?
(c) Plot the NPV of the project if the growth rate of the project was not estimated
correctly by the cash management team. Calculate the NPV if the growth rate is
between -4% and 4% in whole percentage point increments.
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