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Huron Valley Homes is considering a project requiring a $1 million initial investment. Expected cash inflows will

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Huron Valley Homes is considering a project requiring a $1 million initial investment. Expected cash inflows will be $25,000 in the first year, $100,000 in the second year, and $200,000 per year for the next six years.
a. Calculate the project’s IRR and the NPV assuming an 8% cost of capital.
b. How much would each of the last six payments have to be to make the project’s NPV $100,000?

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Use the NPVIRR feature of the calculator rather than the TVM keys a CFo 1000000 CF1 25000 CF2 100000 ...View the full answer


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Jehal Shah
I believe everyone should try to be strong at logic and have good reading habit. Because If you possess these two skills, no matter what difficult situation is, you will definitely find a perfect solution out of it. While logical ability gives you to understand complex problems and concepts quite easily, reading habit gives you an open mind and holistic approach to see much bigger picture. So guys, I always try to explain any concept keeping these two points in my mind. So that you will never forget any more importantly get bored. Last but not the least, I am finance enthusiast. Big fan of Warren buffet for long term focus investing approach. On the same side derivatives is the segment I possess expertise. If you have any finacne related doubt, do reach me out.
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Practical financial management

Practical financial management

ISBN: 978-0324422634

5th Edition

Authors: William r. Lasher

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NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.

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