Question
Look at the cash flows for projects F and G given below. Cash Flows($) Project C0 C1 C2 C3 C4 C5 C6 C7 C8 IRR
Look at the cash flows for projects F and G given below. Cash Flows($) Project C0 C1 C2 C3 C4 C5 C6 C7 C8 IRR (%) NPV at 10% F (7,500 ) 5,000 5,000 5,000 0 0 0 0 0 44.6 4,934 G (7,500 ) 2,400 2,400 2,400 2,400 2,400 2,400 2,400 2,400 27.4 5,304 The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects sponsors, instructs them to use a discount rate of 18%. a. What are the projects true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started