Question
3. Calculate the internal rate of return for the following set of cash flows: t1: 400 t2: 400 t3: -1,000 If the opportunity cost of
3. Calculate the internal rate of return for the following set of cash flows: t1: 400 t2: 400 t3: -1,000 If the opportunity cost of capital is 10%, should the project be accepted?
4. The Ambergast Corporation is considering a project that has a three-year life and costs $1,200. It would save $360 per year in operating costs and increase revenue by $200 per year. It would be financed with a three-year loan with the following payment schedule (the annual rate of interest is 5%):
Payment Interest Repayment of Principal Balance
440.65 60.00 380.65 819.35
440.65 40.97 399.68 419.67
440.65 20.98 419.67 0
121.95 1,200.00
If the company has a 10% after tax weighted average cost of capital, has a 40% tax rate, and uses straight-line depreciation, what is the net present value of the project?
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