5. Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table:   a. Calculate the investment’s net present value at each of the following discount rates: 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%. b. What does your answer to part b tell you about this project’s IRR? c. Should Froogle invest in this project if its cost of capital is 5%? What if the cost of capital is 15%? d. In general, when faced with a project like this, how should a firm decide whether to invest in the project or reject it?

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
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5. Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table:

 

a. Calculate the investment’s net present value at each of the following discount rates: 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%.

b. What does your answer to part b tell you about this project’s IRR?

c. Should Froogle invest in this project if its cost of capital is 5%? What if the cost of capital is 15%?

d. In general, when faced with a project like this, how should a firm decide whether to invest in the project or reject it?

Year
0
1
2
3
4
Cash flow
$ 200,000
-920,000
1,582,000
-1,205,200
343,200
Transcribed Image Text:Year 0 1 2 3 4 Cash flow $ 200,000 -920,000 1,582,000 -1,205,200 343,200
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