Question 1: A company is evaluating a project that will require an investment of $21,500,000 and will generate the following cash flows: Year 1: $3,700,000 Year 2: $4,900,000 Year 3: $8,700,000 Year 4: $9,300,000 Year 5: $11,500,000 Year 6: $12,000,000 The project can also be sold at the end of year 6 for $8,000,000. For each of the below questions, please define your investment decision (invest or not to invest) and define the reason behind your decision. a. Calculate the payback period of this investment opportunity; b. Calculate the discounted payback period of this investment opportunity using a 20% discount rate; c. Calculate the net present value of this investment opportunity assuming your required rate of return is 20% and 30%; d. Calculate and interpret the IRR of this investment opportunity.
Question 1: A company is evaluating a project that will require an investment of $21,500,000 and will generate the following cash flows: Year 1: $3,700,000 Year 2: $4,900,000 Year 3: $8,700,000 Year 4: $9,300,000 Year 5: $11,500,000 Year 6: $12,000,000 The project can also be sold at the end of year 6 for $8,000,000. For each of the below questions, please define your investment decision (invest or not to invest) and define the reason behind your decision. a. Calculate the payback period of this investment opportunity; b. Calculate the discounted payback period of this investment opportunity using a 20% discount rate; c. Calculate the net present value of this investment opportunity assuming your required rate of return is 20% and 30%; d. Calculate and interpret the IRR of this investment opportunity.
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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Transcribed Image Text:Question 1:
A company is evaluating a project that will
require an investment of $21,500,000 and
will generate the following cash flows:
Year 1: $3,700,000
Year 2: $4,900,000
Year 3: $8,700,000
Year 4: $9,300,000
Year 5: $11,500,000
Year 6: $12,000,000
The project can also be sold at the end of
year 6 for $8,000,000.
For each of the below questions, please define
your investment decision (invest or not to
invest) and define the reason behind your
decision.
a. Calculate the payback period of this
investment opportunity;
b. Calculate the discounted payback period of
this investment opportunity using a 20%
discount rate;
c. Calculate the net present value of this
investment opportunity assuming your
required rate of return is 20% and 30%;
d. Calculate and interpret the IRR of this
investment opportunity.
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