Fatimu yoyoeb uisicose Shaiman Selayu uls (ouar orier Corporate Finance Chapter
ID: 2799441 • Letter: F
Question
Fatimu yoyoeb uisicose Shaiman Selayu uls (ouar orier Corporate Finance Chapter 8 Assignment 4 1.The XML Company is considering a AED 308 million investment in a new project which they anticipate will provide annual cash flows of AED 75 million for the next 6 years. The firm has a 15% cost of capital. What is the internal rate of return? 2.A project requires an investment of AED 60 million and has a net present value of AED 20 million If the IRR is 10%, what is the profitability index for the project? 3.The WXT Company is considering making one or both of the following investments. AED million year4 130 90 56. 25 DE * 67,500 (I.B4) 4-118933. So Project Year 0 Year 1 year 2 year 3 250 90 225 300 130 185 220 156 - 252 Which of the two projects should be chosen based on the IRR method? 3 °6.52 04 4.RMW Industries is considering expanding its current line of business and has developed the following expected cash flows for the project. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 134 percent? Why or why not? MCKR. - (EX) - Year Cash Flow -$387,500 - 239,400 (Isrtai 67,500 238,900 + 164, sau (B4)4-3- 164,500 + 12,70 (134 )" - an .22100 -22,700 564491384 (-383,500 OT./ FV: 569 491.38 - 0.10: 107- X 5. Listed below are the cash flows associated with two mutually exclusive projects. A and B. Calculate their crossover rate. A B -10,000 -7,000 5,000 9000 7000 5000 9000 2000 Year --Explanation / Answer
Solution :
1. At IRR, NPV = 0
Present Value of Cash Inflows = Cash Outflow
Cash Inflows * PVIFA(IRR,6) = 308 million
75 million * PVIFA(IRR,6) = 308 million
PVIFA(IRR,6) = 4.1067
From Present Value Annuity Table , we find out IRR = 12% (look for n=6, you will get PVIFA(12,6) approximately equal to 12%)
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