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(b) Company ABC Pty Ltd considers a potential project with the following estimated net cash flows ($000s): Year 0 1 2 Project C -10,000 -3,000
(b) Company ABC Pty Ltd considers a potential project with the following estimated net cash flows ($000s):
Year | 0 | 1 | 2 |
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Project C | -10,000 | -3,000 | 14,500 |
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The project would be funded entirely by debt (borrowing) rather than by equity capital. The average borrowing cost for the company for a 2 year project with these risk characteristics is 8% p.a. Calculate the Internal Rate of Return (IRR) for Project C (2 d.p.) and use it to determine whether ABC should proceed with the project. (NOT IN EXCEL WANT CALCULATIONS)
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