Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year 0 1 2 3 3 A Cash Flow -$1,275,000 435,000 505,000 415,000 345,000 In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 4%. If the Anderson uses a required return of 10% on this project, should you accept the project or not? O Yes, because the IRR is greater than the required return 10% O Yes, because the IRR is greater than the 4% reinvestment rate O No, because 10% is too low as a required return O No, because you don't want to delay the future cash flows.
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year 0 1 2 3 3 A Cash Flow -$1,275,000 435,000 505,000 415,000 345,000 In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 4%. If the Anderson uses a required return of 10% on this project, should you accept the project or not? O Yes, because the IRR is greater than the required return 10% O Yes, because the IRR is greater than the 4% reinvestment rate O No, because 10% is too low as a required return O No, because you don't want to delay the future cash flows.
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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Anderson International Limited is evaluating a project in Erewhon. The project will create the
following cash flows:
Year
O
Cash Flow
-$1,275,000
435,000
505,000
415,000
st
345,000
In an attempt to improve its economy, the Erewhonian government has declared that all cash
flows created by a foreign company are "blocked" and must be reinvested with the
government for one year. The reinvestment rate for these funds is 4%. If the Anderson uses a
required return of 10% on this project, should you accept the project or not?
O Yes, because the IRR is greater than the required return 10%
O Yes, because the IRR is greater than the 4% reinvestment rate
O No, because 10% is too low as a required return
O No, because you don't want to delay the future cash flows.
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