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Problem 1 (35 Points): The cash flows associated with a certain project are shown below: Year Costs Revenue 0 0 1 2 40,000 20,000 20,000
Problem 1 (35 Points): The cash flows associated with a certain project are shown below: Year Costs Revenue 0 0 1 2 40,000 20,000 20,000 20,000 20,000 30,000 3 30,000 33,000 36,000 39,000 42,000 4 5 a) Use Trial & Error to determine the Rate of Return for the project. (20 Points) b) If the revenue in year 5 drops to $25,000 and the cash flow becomes nonconventional, use an investment rate ii = 18% and a borrowing rate ib = 10% to estimate the Rate of Return for the project. (15 Points)
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