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Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed.
Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup
servers crashed. The company's CFO remembers that the internal rate of return IRR of Project Gamma is but he can't recall
how much Green Caterpillar originally invested in the project nor the project's net present value NPV However, he found a note that
detailed the annual net cash flows expected to be generated by Project Gamma. They are:
The CFO has asked you to compute Project Gamma's initial investment using the information currently available to you. He has offered the following
suggestions and observations:
A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows
equals the discounted value of its cash outflowswhen the cash flows are discounted using the project's IRR.
The level of risk exhibited by Project Gamma is the same as that exhibited by the company's average project, which means that
Project Gamma's net cash flows can be discounted using Green Caterpillar's WACC.
Given the data and hints, Project Gamma's initial investment is
and its NPV is
rounded to the nearest whole
dollar
A project's IRR will
if the project's cash inflows decrease, and everything else is unaffected.
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