Question 4 Eli Company Ltd is considering an investment of GHS 350,000 in a startup. The following cash flows are expected. Year GHS 0 (350,000) 1 50,000 2 100,000 3 200,000 4 150,000 a) Assume that the enterprise maintains a debt to equity ratio of 3:2. If the interest rate on a bank loan is 13% and the cost of equity is 15%, what will be the Net Present Value (NPV) of the investment? b) What is the Internal Rate of Return (IRR) for the project? c) Reinvesting at cost of capital, what will be the Modified Internal Rate of Return (MIRR) for the proposed investment? d) What will be your overall advice concerning viability of the project?
Question 4 Eli Company Ltd is considering an investment of GHS 350,000 in a startup. The following cash flows are expected. Year GHS 0 (350,000) 1 50,000 2 100,000 3 200,000 4 150,000 a) Assume that the enterprise maintains a debt to equity ratio of 3:2. If the interest rate on a bank loan is 13% and the cost of equity is 15%, what will be the Net Present Value (NPV) of the investment? b) What is the Internal Rate of Return (IRR) for the project? c) Reinvesting at cost of capital, what will be the Modified Internal Rate of Return (MIRR) for the proposed investment? d) What will be your overall advice concerning viability 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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Transcribed Image Text:Question 4
Eli Company Ltd is considering an investment of GHS
350,000 in a startup. The following cash flows are expected.
Year GHS
0
(350,000)
1
50,000
2 100,000
3
200,000
4
150,000
a) Assume that the enterprise maintains a debt to equity
ratio of 3:2. If the interest rate on a bank loan is 13%
and the cost of equity is 15%, what will be the Net
Present
Value
(NPV)
of
the
investment?
b) What is the Internal Rate of Return (IRR) for the
project?
c) Reinvesting at cost of capital, what will be the
Modified Internal Rate of Return (MIRR) for the
proposed investment?
d) What will be your overall advice concerning viability
of the project?
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