nderson International Limited is evaluating a project in Erewhon. The project w Year 0 DHZ34 1 2 Cash Flow -$ 576,000 206,000 149,000 214,000 193,000

Essentials Of Investments
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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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Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Year
0
1
2
3
4
Cash Flow
-$ 576,000
206,000
149,000
214,000
193,000
All cash flows will occur in Erewhon and are expressed in dollars. 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 5 percent. Assume Anderson uses a required return of 11 percent on this project.
a. What is the NPV of the project?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer
to 2 decimal places, e.g., 32.16.
b. What is the IRR of the project?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
a. NPV
b. IRR
%
Transcribed Image Text:Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year 0 1 2 3 4 Cash Flow -$ 576,000 206,000 149,000 214,000 193,000 All cash flows will occur in Erewhon and are expressed in dollars. 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 5 percent. Assume Anderson uses a required return of 11 percent on this project. a. What is the NPV of the project? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the IRR of the project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. NPV b. IRR %
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