Question
Suppose that a project will cost $95,000 initially and it will generate the following nonconventional cash flows: Year 1: $135,000 Year 2: $120,000 Year 3:
Suppose that a project will cost $95,000 initially and it will generate the following nonconventional cash flows:
Year 1: $135,000
Year 2: $120,000
Year 3: $168,000
Year 4: $110,000
Year 5: $122,000
a) If the required return is 10%, would you accept or reject the project? Why? Explain.
b) If the required return is 60%, would you accept or reject the project? Why? Explain.
c) Explain why the IRR generated by a financial calculator can be misleading to answer parts a and b?
d) What are the IRRs of this project within the 0% and 100% rate range? Solve in Excel and upload the Excel file on Blackboard.
e) Using your findings in part c, plot the NPV profile within the 0% and 100% rate range (rate on the horizontal axis and NPV on the vertical axis). Upload the Excel file with the graph on Blackboard.
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