Question
As a separate project (Project P), you are considering sponsoring a pavilion at the upcoming Worlds Fair. The pavilion would cost $850,000, and it is
As a separate project (Project P), you are considering sponsoring a pavilion at the upcoming Worlds Fair. The pavilion would cost $850,000, and it is expected to result in $7 million of incremental cash inflows during its 1 year of operation. However, it would then take another year, and $6 million of costs, to demolish the site and return it to its original condition. Thus, Project Ps expected net cash flows look like this (in millions of dollars): Year Net Cash Flows 0 ($0.85) 1 7.0 2 (6.0) The project is estimated to be of average risk, so its cost of capital is 10%. 14. What are normal and nonnormal cash flows? 15. What is Project Ps NPV? What is its IRR? What is its MIRR? 16. Draw Project Ps NPV profile. Does Project P have normal or nonnormal cash flows? Should this project be accepted?
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