Question
Company A wants to build a wastewater treatment system. According to the company's CFO, the project will generate $290,000 in net cash flow for the
Company A wants to build a wastewater treatment system. According to the company's CFO, the project will generate $290,000 in net cash flow for the company by the end of FY1, and net cash flow is projected to grow at a rate of 5% annually to permanent. This project required an initial investment cost of $3,900,000.
a. If the company requires a profitability rate of 11% for this project, should it start this wastewater treatment business?
b. The company is not so sure about the 5% growth rate of cash flow. With what is the growth rate, will the company break even if they still demand a return of 11% for this investment project? (hint: use NPV)
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