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Question 4 A construction company is considering investing in a new project with an initial outlay of $250,000. The forecasted net cash flows are given
Question 4
A construction company is considering investing in a new project with an initial outlay of $250,000. The forecasted net cash flows are given below. The company's cost of capital is 10%. Calculate and comment on the project's NPV, IRR, and profitability index.
Year | Cash Flows | Discount Factor (10%) |
1 | $60,000 | 0.909 |
2 | $70,000 | 0.826 |
3 | $80,000 | 0.751 |
4 | $90,000 | 0.683 |
5 | $100,000 | 0.621 |
Salvage Value | $50,000 | 0.621 |
Requirements:
- Calculate the Net Present Value (NPV).
- Determine the Internal Rate of Return (IRR).
- Compute the profitability index.
- Assess the investment based on NPV, IRR, and profitability index.
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