Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table:
IntegrativeMultiple IRRs Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table: a. Why is it difficult to calculate the payback period for this project? b. Calculate the investment's net present value at each of the following discount rates: 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%. c. What does your answer to part b tell you about this project's IRR? d. Should Froogle invest in this project if its cost of capital is 5%? What if the cost of capital is 15%? e. In general, when faced with a project like this, how should a firm decide whether to invest in the project or reject it? Data table a. Why is it difficult to calculate the payback period for this project? (Select the best answer below.) (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) O A. The short life of the project makes it difficult to compute the payback period. OB. The huge amount of cash outflow in year 3 makes the calculation difficult. OC. The oscillating cash flows make it difficult to compute the payback period. OD. It is unreal for a project to have a cash inflow as an initial investment. b. If the discount rate is 0%, the investment's NPV is $0. (Round to two decimal places.) Year 0 1 2 3 4 AWNO Cash flow $200,000 - $920,000 $1,582,000 - $1,205,200 $343,200 If the discount rate is 5%, the investment's NPV is $ (Round to two decimal places.) Integrative Multiple IRRs Froogle Enterprises is evaluating an unusual investment proiect. What makes the proiect unusual is the stream of cash inflows and outflows shown in the following table: b. If the discount rate is 0%, the investment's NPV is $. (Round to two decimal places.) If the discount rate is 5%, the investment's NPV is $ (Round to two decimal places.) If the discount rate is 10%, the investment's NPV is $ (Round to two decimal places.) If the discount rate is 15%, the investment's NPV is $ (Round to two decimal places.) If the discount rate is 20%, the investment's NPV is $ (Round to two decimal places.) If the discount rate is 25%, the investment's NPV is $ (Round to two decimal places.) If the discount rate is 30%, the investment's NPV is $ (Round to two decimal places.) If the discount rate is 35%, the investment's NPV is $ (Round to two decimal places.) c. What does your answer to part b tell you about this project's IRR? (Select the best answer below.) Intearative Multiple IRRs Frooale Enterprises is evaluating an unusual investment proiect. What makes the proiect unusual is the stream of cash inflows and outflows shown in the following table: c. What does your answer to part b tell you about this project's IRR? (Select the best answer below.) O A. There is only one IRR for this project. OB. There are multiple IRRs for this project. O C. There is no IRR for such cash flows. OD. There are infinite IRRs for this project. d. Should Froogle invest in this project if its cost of capital is 5%? (Select the best answer below.) O A. Yes OB. No Should Froogle invest in this project if its cost of capital is 15%? (Select the best answer below.) O A. Yes Na Integrative Multiple IRRs Froogle Enterprises is evaluating an unusual investment proiect. What makes the proiect unusual is the stream of cash inflows and outflows shown in the following table: B VUIU Irvuyi "VUEL PUU" U vor vi vpiui v IV. VIVULLIUNULUI UNUI VIUN. / O A. Yes OB. No Should Froogle invest in this project if its cost of capital is 15%? (Select the best answer below.) O A. Yes OB. No e. In general, when faced with a project like this, how should a firm decide whether to invest in the project or reject it? (Select the best answer below.) O A. It is best to use the NPV method. OB. It is best to use the payback period method. OC. It is best to use the IRR method. OD. None of the methods is suitable
