Question
A firm is considering an investment project that requires an initial outlay of RM5,000,000. The project is expected to provide cash inflows of RM1,800,000 in
A firm is considering an investment project that requires an initial outlay of RM5,000,000. The project is expected to provide cash inflows of RM1,800,000 in year 1, RM1,900,000 in year 2, RM1,700,000 in year 3 and RM1,300,000 in year 4.
a) What is the net present value (NPV) for the project if its cost of capital is 15%?
b) What is the profitability index (PI) for the project?
c) Why is NPV considered to be a superior method of evaluating the cash flows from a project?
Step by Step Solution
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Step: 1
a Year Cash inflows PV factor 15 PV of cash flows 0 5000000 1 1800000 0869565217 1565217391 2 190000...
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Step: 3
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Derivatives Markets
Authors: Rober L. Macdonald
4th edition
321543084, 978-0321543080
