2. Your firm is considering an expansion of its operations into a nearby geographic area that the firm is currently not serving. This would require an up-front investment (startup cost) of $989,060.00, to be made immediately. Here are the forecasts that were prepared for this project: Year Cash Flow 0 -989,060.00 1 70,120.00 2 74,411.34 3 80,937.22 4 89,896.97 The long-term growth rate for cash flows after year 4 is expected to be 4.73%. The cost of capital appropriate for this project is 12.48%. Prepare a detailed and concrete recommendation, explaining whether the firm should go ahead with this project, and why. Provide all information that your superiors may want to see.
2. Your firm is considering an expansion of its operations into a nearby geographic area that the firm is currently not serving. This would require an up-front investment (startup cost) of $989,060.00, to be made immediately. Here are the forecasts that were prepared for this project: Year Cash Flow 0 -989,060.00 1 70,120.00 2 74,411.34 3 80,937.22 4 89,896.97 The long-term growth rate for cash flows after year 4 is expected to be 4.73%. The cost of capital appropriate for this project is 12.48%. Prepare a detailed and concrete recommendation, explaining whether the firm should go ahead with this project, and why. Provide all information that your superiors may want to see.
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
Your firm is considering an expansion of its operations into a nearby geographic area that the firm is currently not serving. This would require an up-front investment (startup cost) of $989,060.00, to be made immediately. Here are the forecasts that were prepared for this project, shown in the image. The long-term growth rate for cash flows after year 4 is expected to be 4.73%. The cost of capital appropriate for this project is 12.48%. What is the NPV, Profitability Index, IRR and payback in this case?
Transcribed Image Text:2. Your firm is considering an expansion of its operations into a nearby geographic area that the firm is
currently not serving. This would require an up-front investment (startup cost) of $989,060.00, to be
made immediately. Here are the forecasts that were prepared for this project:
Year
Cash Flow
0
-989,060.00
1
70,120.00
2
74,411.34
3
80,937.22
4
89,896.97
The long-term growth rate for cash flows after year 4 is expected to be 4.73%. The cost of capital
appropriate for this project is 12.48%. Prepare a detailed and concrete recommendation, explaining
whether the firm should go ahead with this project, and why. Provide all information that your
superiors may want to see.
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