Question 3. GIMPA Business School is considering a project that requires a cash outlay of $4,000 now, and another $3,000 expense one year from now. The risk-free rate is 6%. The project will terminate after two years, at which time it will generate a single positive cash flow of $10,000. (A) Calculate the internal rate of return of this project. (B) If the cost of capital for GIMPA Business School is 20%, should it undertake the above project? (C) Verify your answer to (B) by calculating the NPV of the project.
Question 3. GIMPA Business School is considering a project that requires a cash outlay of $4,000 now, and another $3,000 expense one year from now. The risk-free rate is 6%. The project will terminate after two years, at which time it will generate a single positive cash flow of $10,000. (A) Calculate the internal rate of return of this project. (B) If the cost of capital for GIMPA Business School is 20%, should it undertake the above project? (C) Verify your answer to (B) by calculating the NPV of the project.
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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![Question 3. GIMPA Business School is considering a project
that requires a cash outlay of $4,000 now, and another $3,000
expense one year from now. The risk-free rate is 6%. The
project will terminate after two years, at which time it will
generate a single positive cash flow of $10,000.
(A) Calculate the internal rate of return of this project.
(B) If the cost of capital for GIMPA Business School is 20%,
should it undertake the above project?
(C) Verify your answer to (B) by calculating the NPV of the
project.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fec428d6f-c3ff-4645-bb31-d66c1a3d003b%2F3b17c6b3-adb3-4606-8c0b-a78075c3f39b%2F0k2xins_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 3. GIMPA Business School is considering a project
that requires a cash outlay of $4,000 now, and another $3,000
expense one year from now. The risk-free rate is 6%. The
project will terminate after two years, at which time it will
generate a single positive cash flow of $10,000.
(A) Calculate the internal rate of return of this project.
(B) If the cost of capital for GIMPA Business School is 20%,
should it undertake the above project?
(C) Verify your answer to (B) by calculating the NPV of the
project.
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