1) You are evaluating purchasing the rights to a project that will generate after tax expected operating cash flows of $88k at the end of each of the next five years, plus an additional $1,000k non-operating cash flow at the end of the fifth year

Finance Nov 11, 2020

1) You are evaluating purchasing the rights to a project that will generate after tax expected operating cash flows of $88k at the end of each of the next five years, plus an additional $1,000k non-operating cash flow at the end of the fifth year. You can purchase this project for $631k. If your firm's cost of capital (aka required rate of return) is 14.9%, what is the NPV of this project? Provide your answer in units of $1000, thus, $15000 = 15k and thus you should enter 15 for your answer.

2) What is the IRR of the following project? After-tax initial investment = $7691; CFI= $1860; CF2 = $3220; CF3 = $3740, CF4 = $4720. If k = 18 percent, should you accept the project?

Expert Solution

1) NPV of the project = 164

2) IRR of the project = 23.13%

Since, the IRR is greater than the cost of capital (18%). So, the project should be accepted.

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