6) Twitter is considering purchasing a new Al computer to manage its platform. This computer would cost $74,250 and generate cash flows according to the following table over the next 5 years. Its has an IRR of 12% and Twitter has a WACC of 8%. Period Cash Flows 0 $-74,250 1 $15,000 2 $17,000 3 $21,000 4 $25,000 5 $29,000 a) If you use the reinvestment assumption from the NPV method, what would be the total value of these inflows at the end of the 5 year period? b) If the reinvestment assumption from the IRR method is used, what would be the total value of these inflows at the end of the 5 year period? c) Which assumption is more plausible?
6) Twitter is considering purchasing a new Al computer to manage its platform. This computer would cost $74,250 and generate cash flows according to the following table over the next 5 years. Its has an IRR of 12% and Twitter has a WACC of 8%. Period Cash Flows 0 $-74,250 1 $15,000 2 $17,000 3 $21,000 4 $25,000 5 $29,000 a) If you use the reinvestment assumption from the NPV method, what would be the total value of these inflows at the end of the 5 year period? b) If the reinvestment assumption from the IRR method is used, what would be the total value of these inflows at the end of the 5 year period? c) Which assumption is more plausible?
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
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Transcribed Image Text:6) Twitter is considering purchasing a new Al computer to manage its platform. This computer would cost $74,250 and generate cash flows according to the following table over the next 5 years. Its
has an IRR of 12% and Twitter has a WACC of 8%. Period Cash Flows 0 $-74,250 1 $15,000 2 $17,000 3 $21,000 4 $25,000 5 $29,000 a) If you use the reinvestment assumption from the NPV
method, what would be the total value of these inflows at the end of the 5 year period? b) If the reinvestment assumption from the IRR method is used, what would be the total value of these
inflows at the end of the 5 year period? c) Which assumption is more plausible?
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