1) what is the IRR(%) for the following project if its initial after tax cost is

Question

1) what is the IRR(%) for the following project if its initial after tax cost is 5,000,000 and its is expected to provide after-tax operating cash inflows of 1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3, and 1,300,000 in year 4?

a) 15.57 b)17.55% c) 13.57% d)15.75% e) none of the above

2) the current annual dividend of a compnay is $1.25/ share and the firm's required return is 12% dividends are expected to grow at 8% annually for three years, followed by a 5% constant annual growth rate. what is the firm's market value per share?

a) 19.21 b) 12.91 c) 29.11 d) 18.93 e) none of the bove

Explanation / Answer

1) At IRR NPV = 0

Present value of cash outflow -present value of cash inflow = 0

Present value of cash outflow =present value of cash inflow

($5,000,000) = Year 1 $1,800,000 * (1/(1+r)) +Year 2 $1,900,000 * (1/(1+r)2) +Year 3  $1,700,000 * (1/(1+r)3)+ Year 4  $1,300,000 * (1/(1+r) 4)

By trial or error method or using spread sheet or using financial calculator we can find IRR of this cashflow

series is 13.57%,

=IRR(R4:R8)

Answer is c) 13.57%

2) D0 = $1.25 , R = 12%,

Answer e) none of the bove

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.