You are a banker to Livingstone Thompson Limited, a textile manufacturing company. Livingstone Thompson Ltd. is planning to establish a new factory overseas. Livingstone Thompson Ltd. have told you that the factory will run for six years and then be sold to a local entity. The Finance Department of Livingstone Thompson Ltd. has estimated the following yearly cash flows: Year Cash Flow (£) 0 -30,000,000 1 8,000,000 2 8,000,000 3 8,000,000 4 8,000,000 5 8,000,000 6 14,000,000 The Financial Manager of Livingstone Thompson Ltd. has decided that the company’s cost of capital of 15% is an appropriate hurdle rate for this project and informed you who will be providing the finance. Calculate the Net Present Value (NPV) for this project. Calculate the Internal Rate of Return (IRR)of this project. Make a recommendation to your department manager concerning whether to provide finance for this project.
You are a banker to Livingstone Thompson Limited, a textile manufacturing company. Livingstone Thompson Ltd. is planning to establish a new factory overseas. Livingstone Thompson Ltd. have told you that the factory will run for six years and then be sold to a local entity. The Finance Department of Livingstone Thompson Ltd. has estimated the following yearly cash flows: Year Cash Flow (£) 0 -30,000,000 1 8,000,000 2 8,000,000 3 8,000,000 4 8,000,000 5 8,000,000 6 14,000,000 The Financial Manager of Livingstone Thompson Ltd. has decided that the company’s cost of capital of 15% is an appropriate hurdle rate for this project and informed you who will be providing the finance. Calculate the Net Present Value (NPV) for this project. Calculate the Internal Rate of Return (IRR)of this project. Make a recommendation to your department manager concerning whether to provide finance for this 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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You are a banker to Livingstone Thompson Limited, a textile manufacturing company. Livingstone Thompson Ltd. is planning to establish a new factory overseas. Livingstone Thompson Ltd. have told you that the factory will run for six years and then be sold to a local entity. The Finance Department of Livingstone Thompson Ltd. has estimated the following yearly cash flows:
|
Year |
Cash Flow (£) |
|
0 |
-30,000,000 |
|
1 |
8,000,000 |
|
2 |
8,000,000 |
|
3 |
8,000,000 |
|
4 |
8,000,000 |
|
5 |
8,000,000 |
|
6 |
14,000,000 |
The
- Calculate the
Net Present Value (NPV) for this project. - Calculate the
Internal Rate of Return (IRR)of this project. - Make a recommendation to your department manager concerning whether to provide finance for this project.
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