You are considering an investment opportunity that requires an initial investment of $148 million in period 0. Starting in one year, it will generate $11.2 million per year in perpetuity (i.e. every year forever). The cost of cap 13%. What is the IRR (the internal rate of return) for the project? [Note that getting the actual value should not require trial and error or a financial calculator, because this is a simple case.l

You are considering an investment opportunity that requires an initial investment of $148 million in period 0. Starting in one year, it will generate $11.2 million per year in perpetuity (i.e. every year forever). The cost of cap 13%. What is the IRR (the internal rate of return) for the project? [Note that getting the actual value should not require trial and error or a financial calculator, because this is a simple case.l

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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Similar questions

A project has an initial cost of $ 55,000, expected net cash inflows of $10,000 per year for 10 years, and a cost of capital of 9%. What is the project's NPV ? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent.
You are considering investing in a project that has an initial cost of $18,000, a WACC of 15%, with the estimated net cashflows for years 1, 2, 3 being equal to $20,000, $ 10,000, $6,000. Would you accept this project? _____________, Why?
You are planning to issue debt to finance a new project. The project will require $20.86 million in financing and you estimate its NPV to be $15.199 million. The issue costs for the debt will be 2.7% of face value. Taking into account the costs of external financing, what is the NPV of the project? The new NPV will be $ __ ? (Round to the nearest dollar.)
Consider a public project with a forecast period of 20 years. The discount rate is 3.5%.The net benefit in year 20 is forecast to be 10. You expect that each year from year 20,conditional on making it to year t≥20, there is only an 80% chance of continuing anotheryear. Net benefits grow 2% per year as long as the project continues.a) What is the discount factor (δ) b) What is the horizon value?
An investment has a cost of $3500. The investment will have a payout of X at the end of the first year. This initial payout X will grow at the rate of 12% per year for the next 4 years, then by 7% per year for the next 4 years, and then at the rate of 3% per year for the following 3 years. You believe the riskiness of this investment is 9%. Calculate the smallest X that would entice you to invest.
A project has an initial cost of $50,000, expected net cash inflows of $11,000 per year for 10 years, and a cost of capital of 14%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent.
Alternative Uno has a first cost of $10,000 and annual expenses of $3000, whereas Alternative Dos has a first cost of $35,000, annual expenses of $2000, and a recurring cost of $5000 every 10 years. If both alternatives have an infinite life, which of the following equations can be used to solve for the rate of return on the incremental investment? (a) 0 = −$25, 000 + $1000/i − $5000(A/F, i, 10) (b) 0 = −$25, 000 + $1000/i + $5000(A/P, i, 10)/i (c) 0 = −$25, 000 + $1000/i − $5000(A/F, i, 10)/i (d) 0 = +$25, 000 − $1000/i + $5000(A/F, i, 10)?
A project that provides annual cash flows of $16,900 for eight years costs $75,000 today. What is the NPV for the project if the required return is 7 percent? What is the NPV for the project if the required return is 19 percent? (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.) At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
A project that provides annual cash flows of $16,900 for eight years costs $75,000 today. What is the NPV for the project if the required return is 7 percent? What is the NPV for the project if the required return is 19 percent? (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.) At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
An investment under consideration has a payback of seven years and a cost of $884,000. Assume the cash flows are conventional. If the required return is 11 percent, what is the worst-case NPV? (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.)
I am considering a project with free cash flows in one year of €200,000 or €250,000 with equal probability. The cost of the project is $180,000. The project’s cost of capital is 12% and the risk-free rate is 4%. What is the NPV of the project? If the project is financed by all equity, what is the initial market value of the unlevered equity? If the project is financed with 50% debt (at the risk-free rate), what is the expected return on the levered equity?
Project X has an initial investment at time O of $1,000 and it returns $250 one year from now and$1,000 two years from now. Project Y has an initial investment at time O of $2,000 and it returns$2,534.40 two years from now. The risk level and the net present values of the two projects areequal. Calculate the required return for project X. Answer: 12% please do not solve with excel

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