Loading... Please wait...

Categories

Our Newsletter


You are considering a project that requires an immediate investment of $10 million (t=0), and which generates cash flows that start in three years, i.e., at the end of t=3

Price:
$15.99
SKU:
118762


Product Description

You are considering a project that requires an immediate investment of $10 million

 

(t=0), and which generates cash flows that start in three years, i.e., at the end of t=3.

 

The cash flow at the end of t=3 is $2 million, which is expected to grow forever at 3%.

 

You face some uncertainty over the discount rate, and so plan to approach this problem

 

using both the net present value (NPV) and internal rate of return (IRR) approaches.

 

 

 

Question: Suppose that you are unsure about 12% being an accurate measure of your cost of

 

capital (i.e., investors may view the project as more or less risky, and thus may demand

 

more or less than 12%). Faced with this uncertainty, you decide to calculate the internal

 

rate of return. What is the IRR of this project, assuming the same cash flows above and

 

growth rate? 25 points.


Find Similar Products by Category


Write your own product review

Product Reviews

This product hasn't received any reviews yet. Be the first to review this product!