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Question 9 A hospitality company is considering a new project that requires an initial investment of $250,000. The expected net cash flows for the project

Question 9

A hospitality company is considering a new project that requires an initial investment of $250,000. The expected net cash flows for the project are detailed below. Assume the company's cost of capital is 9%. Calculate and comment on the project's NPV, IRR, and discounted payback period.

  • Year 1: Cash Flows = $60,000, Discount Factor = 0.917
  • Year 2: Cash Flows = $70,000, Discount Factor = 0.842
  • Year 3: Cash Flows = $80,000, Discount Factor = 0.772
  • Year 4: Cash Flows = $90,000, Discount Factor = 0.708
  • Year 5: Cash Flows = $100,000, Discount Factor = 0.650
  • Salvage Value: $50,000, Discount Factor = 0.650

Requirements:

  1. Calculate the Net Present Value (NPV).
  2. Determine the Internal Rate of Return (IRR).
  3. Compute the discounted payback period.
  4. Provide a brief commentary on the project based on NPV and IRR.

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