Present Value Analysis
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Blanchford Enterprises is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year: 0 1 2 3
Cash flows: -$1,000 $450 $450 $450
12%
16.65%
19.10%
21.55%
25%
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Edison Electric Systems is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.
WACC = 10%
Year: 0 1 2 3
Cash flows: -$1,000 $450 $460 $470
a. $142.37
b. $151.59
c. $166.51
d. $173.26
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The Seattle Corporation has an investment opportunity that will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost $150,000 today, and the firm's WACC is 10%. What is the payback period for this investment?
a. 5.23 years
b. 4.86 years
c. 4.00 years
d. 6.12 years
e. 4.35 years
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The solution answers the question below and goes into quite a bit of detail regarding present values. The answer is ideal for students looking for a detailed analysis of the question asked below. An excellent response to the question being asked.
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1. Use the IRR formula in Excel to get 16.65%. You can also use a financial calculator to solve this problem. However, because ...
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