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Homework answers / question archive / The H Company is considering an investment in the business that would require an outlay of cash today of $15,000

The H Company is considering an investment in the business that would require an outlay of cash today of $15,000. The resultant free cash flows from that investment would be $8,000 one year later and $12,000 two years later. For this problem, there is no need to worry about capital expenditures, net working capital issues, and taxes. You are given the free cash flows.

a. Calculate the Internal Rate of Return (IRR) for this investment opportunity. Be sure to fully show your mathematical work with sufficient detail.

b. Assuming the appropriate interest rate that H Company should use to properly evaluate this investment opportunity is 12%, what is your recommendation about going forward with the project based upon your solution in a. above? Be sure to explain your answer.

c. Now, once again assuming the appropriate interest rate that Hamilton Company should use to evaluate this investment opportunity is 12%, what is the Net Present Value (NPV) of this investment? Be sure to show your work process in sufficient detail.

d. Based upon your answer in c. above, should H Company move forward with this investment? Please explain your answer fully.

5. You are currently looking at a particular bond investment opportunity. There is a zero coupon bond that matures in 20 years that has a price today of $621. If you move forward today with the purchase of that bond at $621, what would be the Yield to Maturity (YTM) you would receive?

Be sure to show all your calculation work and process.