0 of 1 pt 6of8C2 complete) Hw Score: 25%, 2 of 8 pts Problem 9.LO3.33 (similar t

Question

0 of 1 pt 6of8C2 complete) Hw Score: 25%, 2 of 8 pts Problem 9.LO3.33 (similar to) Help You are considering building a shopping mall. The initial investment is $1.45 million. The cash flows are $400,000 for year 1, $290,000 for year 2, $200,000 for year 3 and S 130 000 O y ar 4 What are the net pre sent value NPV and pr f tability index Pl of the project if the cost of capital is 13%? Compute the internal rate of return (IRR) for the project. What is the NPV of the shopping mall? Round to the nearest cent.)

Explanation / Answer

1) On a financial calculator, CF0 = -1,450,000, CF1 = 400,000, CF2 = 290,000, CF3 = 200,000, CF4 = 130,000, I/Y = 13%

=> NPV = -650,563.69 and IRR = -15.09%

2) Payback Period = 25,000 / 7,700 = 3.25

N = 8, I/Y = 10%, PMT = 7,700, FV = 0 => Compute PV = $41,078.93

NPV = 41,078.93 - 25,000 = $16,078.93

N = 8, PMT = 7,700, PV = -25000, FV = 0 => Compute I/Y = 25.93%

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