Question
Please answer the following questions: A project has and initial cost of $32,000, expected net cash inflows of $9,500 per year for 7 years, and
Please answer the following questions:
- A project has and initial cost of $32,000, expected net cash inflows of $9,500 per year for 7 years, and a cost of capital of 10%.
- What is the project's NPV?
- What is the project's IRR?
- What is the projects payback period?
2.Your division is considering two investment projects, each of which requires an up-front expenditure of $20 million. You estimate that the investments will produce the following net cash flows:
YearProject AProject B
1$5,000,000$20,000,000
210,000,00010,000,000
320.000.0006,000,000
a. What are the two project's NPVs assuming the cost of capital is 8%, 14%, 20%?
b. What are the two projects' IRRs at those same costs of capital?
3.A companymust choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate, it will cost $23,000, whereas the gas-powered truck will cost $14,500. The cost of capital that applies to both investments is 13%. The life cycle for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,200 per year and those for the gas-powered truck will be $3,500 per year.Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck and decide which to recommend.
4.A company mustspend $900,500 for new mining equipment and pay $250,000 for its installation. The gold mined will net the firm an estimated $345,000 each year for the 5-year life of the vein. CTC's cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year.
- What are the project's NPV and IRR?
- Should this project be undertaken if environmental impacts were not a consideration?
- How should environmental effects be considered, or any other, project?
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