Corinth has also analysed two other alternative investment projects, details belowThe forecast total undiscounted cashflows for Project Beta: T0T1T2T3T4 £’000£’000£’000£’000£’000Sales revenue (W1)(50,000)11,99512,45519,3652,883 Project Gamma:Initial outlay: £70 MillionProject life: 6 yearsNPV at 0% discount rate: +£5 MillionIRR: 3% and 14% i) For Project Beta, assuming a positive WACC, comment on the sign (negative, positive or indeterminate) of the NPV for Project Beta and in a single sentence explain your reasoning. Also comment on the sign (negative, positive or indeterminate) of the IRR for Project Beta and in a single sentence explain your reasoning

For project Beta, the annual cash flows are provided. Let's assume the WACC of this project be 10%.…

Answered: Corinth has also analysed two other…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

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Corinth has also analysed two other alternative investment projects, details below

The forecast total undiscounted cashflows for Project Beta:

	T0	T1	T2	T3	T4
	£’000	£’000	£’000	£’000	£’000
Sales revenue (W1)	(50,000)	11,995	12,455	19,365	2,883

Project Gamma:
Initial outlay:                          £70 Million
Project life:                            6 years
NPV at 0% discount rate:     +£5 Million
IRR:                                         3% and 14%

i) For Project Beta, assuming a positive WACC, comment on the sign (negative, positive or indeterminate) of the NPV for Project Beta and in a single sentence explain your reasoning.
Also comment on the sign (negative, positive or indeterminate) of the IRR for Project Beta and in a single sentence explain your reasoning

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