Ch 11: Assignment - The Basics of Capital Budgeting Year Year 1 Cash Flow $1,600,000 $3,000,000 Year 2 Year $3,000,000 $3,000,000 Year 4 The CFO has asked you to compute Project Gamma's initial Investment using the information currently available to you. He has offered the following suggestions and observations A project's IRR represents the return the project would ogooches NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows --- when t $7.990,172 discounted using the project's IRR. The level of risk exhibited by Project Gamma is the same ed by the company's average project, which means that 59,245,033 Project Gamma's net cash flows can be discounted using 0% WACC $8,263 830 $8,065,347 and its NPV I (rounded to the nearest whole Given the data and hints, Project Gamma's initial Investments dollar A projects TRR will If the project's cash inflows increase, and everything else is unaffected Ch 11: Assignment - The Basics of Capital Budgeting Year Cash Flow Year 1 $1,600,000 Year 2 $3,000,000 Year 3 $3,000,000 Year 4 $3,000,000 The CFO has asked you to compute Project Gamma's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows--when the cash flows are discounted using $271,367 TRR The level of risk echibited by Project Gamma is the same as that exhibited by the company $283,702 Joject , which means that Project Gamma's net cash flows can be discounted using Cold Goose's 10% WACC. $246,697 $296,036 and its NPV is (rounded to the nearest whole Given the data and hints, Project Gamma's initial investment is doiat A project's IRR will If the project's cash inflows increase, and everything else is unaffected The level of risk exhibited by Project Gamma is the same as that exhibited by the company's average project, Project Gamma's net cash flows can be discounted using Cold Goose's 10% WACC. decrease and its NPV is (ro Given the data and stay the same Imma's initial investment is dollar). Increase A prolect's IRR will If the project's cash inflows increase, and everything else is unaffected Consider the case of cold Goose Metal Works Inc. Last Tuesday. Cold Goose Metal Works Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed: The company's Cho remembers that the internal rate of return (CIRR) of Project Gamma is 12.2%; but he can't recall how much Cold Goose originally invested in the project nor the projects net pretent value (NPV). However, he found a note that detaliud te annual net cash flows expected to be generated by Project Gamma. They are: Year You Year Year Cash Flow $1.600.000 $3.000.000 33.000.000 33,000,000