Question
A small factory that makes electrical components is considering a project which might generate future cash flows as follows. The company will make a decision
A small factory that makes electrical components is considering a project which might generate future cash flows as follows. The company will make a decision whether they will undertake this project based on the Net Present Value analysis/Payback period/IRR method.
Project:
Initial investment = $100 million
Net cash flows
Year 1 34m
Year 2 30m
Year 3 40m
Year 4 36m ($million)
7. What is the payback period of this project? If the hurdle period for the payback period method to evaluate this project is 4 years, what is your decision on this project? Around 3 years and accept
8. What is the Net Present Value of these cash flows assuming that the WACC (can used as a discount rate) of the factory is 10%? What is your decision on this project based on the result from NPV of this project? $10.346 million and accept
9. What is the IRR (Internal Rate of Return) of this project? If the WACC of the factory is 10%, what is your decision on this project?
Please answer question 9, step by step in detail with the calculations by hand
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