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