Question
Your firm is considering an investment that will cost $1.5 million today. The project will produce cash flows of $350,000 in year 1, $390,000 in
Your firm is considering an investment that will cost $1.5 million today. The project will produce cash flows of $350,000 in year 1, $390,000 in years 2 through 4, and $450,000 in year 5.
i. Calculate the Net Present Value (NPV) at the following required rates of return: (a) 8% (b) 10% (c) 12% (d) 14%
(ii.) Calculate the Profitability Index (PI) at the following required rates of return: (a) 8% (b) 10% (c) 12% (d) 14%
(iii.) Using IRR and NPV criterion, comment if the project should be accepted or rejected at the following required rates of return: (a) 8% (b) 10% (c) 12% (d) 14%
(iv) Plot the Net Present Value profile (NPV on Y axis and rates of return on X-axis).
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