Question
A rm is considering an investment project with the following information: Initial capital expenditure $36 million Annual sales (in units) 2 million units Selling price
A rm is considering an investment project with the following information:
Initial capital expenditure $36 million
Annual sales (in units) 2 million units
Selling price per unit $20
Cost per unit $10
Project life 3 years Depreciation Straight line, over the life of the project
Working capital Initially (Year 0) the project requires an increase in net working capital of $6 million, but it will be recovered after the project's life (Year 3).
Tax rate 20%
WACC 15%
(a) What are the project's free cash ows in Years 0, 1, 2, and 3?
(b) What is the net present value of the project? 4 MBAD 6152
(c) What is the modied internal rate of return (MIRR) of the project?
(d) What are the problems of the internal rate of return (IRR) criterion? Does MIRR x, or fail to x, those problems?
Please show all work and calculations
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