Answered step by step
Verified Expert Solution
Question
1 Approved Answer
a) A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital
a) A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%. What is the NPV of the project? (2.5 marks)
b) You are evaluating two 7-year projects both with a positive NPV at a WACC of 10%. One of the projects has all positive cash flows after year 0 and one has negative cash flows in years 0-3, positive cash flows in years 4-7 and a negative cash flow in year 8. If the WACC increased to 15% would you use the IRR or NPV method to evaluate the projects and why? (2.5 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started