QUESTION 16

Titan is evaluating the investment in Project A. Project A requires an investment of $2 million today, $5 million in one year, and $5 million in two years. The new investment will begin to generate an additional annual cash flow of $10 million five years from today in perpetuity. The risk of project A is comparable to the risk of Titans existing business.

16. What is Project A's NPV? Show your work carefully.

17. Is the IRR of Project A greater than Titans WACC? Show your calculation or Explain briefly.