Question
Hello! Please be sure to show all work. Thank you very much in advance. A Corporation is deciding whether to engage in a 2-year project
Hello! Please be sure to show all work. Thank you very much in advance.
A Corporation is deciding whether to engage in a 2-year project that requires an initial cash outflow of I (CF0) = $2,000,000. CF1 is expected to be a cash inflow of $4,670,000 and CF2 is expected to be another cash outflow of $2,722,500. Altogether there are three cash flowsan initial cash outflow, followed by a cash inflow, followed by a second cash outflow at the end of the 2-year project life.
A. Determine the multiple IRRs by plotting the projects NPV Profile and observing where the profile crosses the horizontal axis. Label the axes and all the vertical and horizontal intercepts.
B. Should the corporation accept this project at:
i. k = 10%?
ii. k = 15.5%?
iii. k = 25%?
Explain your reasoning in each of these three cases.
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