Facebook

is considering two proposals to overhaul its network infrastructure. The firm has received two bids. The first bid from Huawei will require a

$22

million upfront investment and will generate

$20

million in savings for

Facebook

at the end of each year for the next

3

years. The second bid from Cisco requires a

$93

million upfront investment and will generate

$60

million in savings at the end of each year for the next

3

years.

a. What is the internal rate of return

[IRR]

for

Facebook

associated with each bid?

b. If the cost of capital (also appropriately called required return) for each investment is

14%,

calculate the net present value

(NPV)

for

Facebook

of each bid.

c.

The larger-scale opportunity proposed by Cisco required an additional upfront investment of

$71

million. However, it also is expected to generate extra end-of-year savings of

$40

million for the next

3

years. In other words, an incremental upfront outlay of

$71

million is expected to generate an incremental

$40

million at the end of each year for the next

3

years. Calculate the IRR for this stream of incremental cash flows. Note: The approach here is exactly the same as you used for the two IRRs in part a.

Facebook is considering two proposals to overhaul its network infrastructure. The firm has received two bids. The first bid from Huawei will require a $22 million upfront investment and will generate $20 million in savings for Facebook at the end of each year for the next 3 years. The second bid from Cisco requires a $93 million upfront investment and will generate $60 million in savings at the end of each year for the next 3 years. a. What is the internal rate of return (IRR) for Facebook associated with each bid? b. If the cost of capital (also appropriately called required return) for each investment is 14%, calculate the net present value (NPV) for Facebook of each bid. c. The larger-scale opportunity proposed by Cisco required an additional upfront investment of $71 million. However, it also is expected to generate extra end-of-year savings of $40 million for the next 3 years. In other words, an incremental upfront outlay of $71 million is expected to generate an incremental $40 million at the end of 3 each year for the next 3 years. Calculate the IRR for this stream of incremental cash flows. Note: The approach here is exactly the same as you used for the two IRRs in part a. a. What is the internal rate of return [IRR] for Facebook associated with each bid? The IRR associated with the first bid from Huawei is [%. (Round to one decimal place.) The IRR associated with the Cisco opportunity is %. (Round to one decimal place.) b. If the cost of capital (also appropriately called required return) for this investment is 14%, what is the NPV of each bid? The NPV for Huawei's bid is $ million. (Round to two decimal places) The NPV for the Cisco opportunity is $ million. (Round to two decimal places) c. The larger-scale opportunity proposed by Cisco required an additional upfront investment of $71 million. However, it also is expected to generate extra end-of-year savings of $40 million for the next 3 years. In other words, an incremental upfront outlay of $71 million is expected to generate an incremental $40 million at the end of each year for the next 3 years. Calculate the IRR for this stream of incremental cash flows. Note: The approach here is exactly the same as you used for the two IRRs in part a. Answer: %. (Round to one decimal place.)