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Irving Ship Building is planning a major expansion of its present production facility. The total cost of the project is estimated at $ 2 0
Irving Ship Building is planning a major expansion of its present production facility. The total cost of
the project is estimated at $ million over the next seven years. Of this, $ million is to be spent in
the first year, $ million in the second, $ million in each of the third, fourth, fifth, and sixth years,
and $ million in the seventh year.
a Assuming that all expenditures occur at the end of the year, and Irvings discount rate is
what is the present value of the cost of this project? marks
b If revenues for the project are expected to start in year at $ million, then increase to $ million
for year $ million for year and $ million for years and Would you approve the project
given the internal rate of return and sevenyear return period?
c Would your conclusion change if the time horizon was shortened to an eightyear term assume
there are no costs in year and revenues continue at $ million
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