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The acquisition will cost the company $10 million and will be funded by a 10-year bank loan at 6% annual interest. The loan is
The acquisition will cost the company $10 million and will be funded by a 10-year bank loan at 6% annual interest. The loan is to be repaid with 10 equal end-of-year payments. Annual net profits from the sales of energy generated by the plant are estimated to be $1,000,000 in years 1 to 5, $1,500,000 in years 6 to 15, and $500,000 in years 16 to 20. The power plant has a useful life of 20 years with a salvage value of $200,000. Assume all cash flows occur at the end of the year. The company's MARR is 10%. (a) What is the annual repayment amount for the bank loan? (b) What is the Present Worth of the project? Is the project financially feasible? (c) What is the IRR of the project? (2 marks) (e) What is the discounted payback period for the project? (2 marks) (2 marks) (d) What is the MIRR of the project if the financing rate is 6% and the reinvestment rate is 10%? (2 marks) (2 marks)
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