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A Corporation is deciding whether to engage in a 2-year project that requires an initial cash outflow of I (CF 0 ) = $2,000,000 .
A Corporation is deciding whether to engage in a 2-year project that requires an initial cash outflow of I (CF0) = $2,000,000. CF1 is expected to be a cash inflow of $4,670,000 and CF2 is expected to be another cash outflow of $2,722,500. Altogether there are three cash flowsan initial cash outflow, followed by a cash inflow, followed by a second cash outflow at the end of the 2-year project life.
- Determine the multiple IRRs by plotting the projects NPV Profile and observing where the profile crosses the horizontal axis. Label the axes and all the vertical and horizontal intercepts.
- Should the corporation accept this project at:
- k = 10%?
- k = 15.5%?
- k = 25%?
Explain your reasoning in each of these three cases.
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