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The net presente NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting
The net presente NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions Consider the case of Cute Camel Woodcraft Company: Last Tuesday. Cute Camel Woodcraft Company lost a portion of its planning and financial data when both its main and its backup Servers crashed. The company's CFO remember that the internal rate of return (IRR) of Project Zetas 14.6%, but he can't recall how much Cute Camel original invested in the project nor the project's not present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Zeta. They are: Year Cash Flow Year 1 $2,000,000 Year 2 $3,750,000 Year 3 $3,750,000 Year 4 $3,750,000 The CFO has asked you to computer Project Zeta's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is Dero or the discounted value of its cash infows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR The level of risk exhibited by Project Zeta is the same as that exhibited by the company's average project, which means that Project Zeta's net cash flows can be discounted using Cute Camel's 9% WACC Given the data and hints, Project Zeta's initial investment is and its NPV's (rounded to the nearest whole dollar) A project's IRR will the project's cash inflows decrease, and everything else is unaffected
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