Question
Q5. An investment project requires an immediate investment of $19 million. In return, it pays $2 million in the year 1, with cash flows decreasing
Q5. An investment project requires an immediate investment of $19 million. In return, it pays $2 million in the year 1, with cash flows decreasing by 3.5% per year after that and lasting forever. The market interest rate is 11%.
Compute the NPV of the project. Should the company take it?
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A. -$5.21 million; Yes, the company should take it.
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B. -$10.51 million; Yes, the company should take it.
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C. -$10.51 million; No, the company shouldn't take it.
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D. -$5.21 million; No, the company shouldn't take it.
Q6. Use the information provided in Q5: Compute the IRR of the project. Should the company take the project?
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A. IRR = 7.03% > 3.5%; Yes, the company should take it.
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B. IRR = 7.03% < 11%; No, the company shouldn't take it.
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C. IRR = 11.53% > 11%; Yes, the company should take it.
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D. IRR = 11.53% > 3.5%; Yes, the company should take it.
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Contemporary Financial Management
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
10th Edition
978-0324289114, 0324289111
