7. Uneven CF streams ou are evaluating a proposed project for your company. The

Question

7. Uneven CF streams ou are evaluating a proposed project for your company. The project is expected to generate the following end-of-year cash flows: -$3,000 $300 $300 $600 $600 8 $800 $8$500 You have been told you should evaluste this project with an interest rate of 9%. What is the project's NPV? O$119.39 o $135.60 O $101.62 O $219.77 $185.79 Your group leader has now told you that the risk of the project was understated before. As a result, she tells you to recalculate the project's NPV with an 11% interest rate, what is the new NPV O -$147.53 O -$190.92 0 -$22.97 O -$115.38 O -$66.36 When the project was first evaluated at 996, you would have advised that the company because it the project value for the company. But now with an 11% interest rate, you will advise the company to the project because it value for the company Calculate the project's internal rate of return (IRR) 12.45% ? 11.52% ? 10.81% o 10.01% ? 9.79% Graded

Explanation / Answer

Ans 1)

NPV of project will be equal to $101.62

Ans 2)

NPV at required rate of return of 11% is equal to -4147.53

Ans 3) At 9% required rate of return I will advise the company to accept the project because it has positive net present value for the company.

But at 11% reject the project because it has negative net present value for the company.

IRR will be equal to 9.79%

0 1 2 3 4 5 6 7 8 Cash flow -3000 300 300 600 600 800 800 800 500 Present Value of Cashflow -3000 275.2294 252.504 463.3101 425.0551 519.9451 477.0139 437.6274 250.9331 NPV of Cashflow 101.62

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