ABC Manufacturing Company will invest in a stamping plant in Madison Ohio. The plant requires an initial...

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^{_{ABC Manufacturing Company will invest in astamping plant in Madison Ohio. The plant requires an
initial outlay of $100,000,000. Net cash inflows from the projectare expected to be $40,000,000 for the first year, $35,000,000 foryear 2 and 3, and $15,000,000 for years 4 through 10, at which timethe stamping plant will be sold for scrap for $10,000,000. If thestamping plant's cost of capital is 10%:}}
^{_{9WhatistheprojectsNPV(closestanswer)}}
^_52,500,000
^_51,200,000
^_50,300,000
^{_{d 50,000,000}}
^{_{10 What is the project's IRR (closestanswer)}}
^_20.00%
^_21.00%
^_22.00%
^{_{d 23.00%}}
^{_{e 24.00%}}

Answer & Explanation Solved by verified expert

4.1 Ratings (743 Votes)

Hello Sir/ Mam

Q - 9 - YOUR REQUIRED ANSWER IS OPTION C : 50,300,000

Time	Cashflows	PVF	PV
0	-$100,000,000.00	1	-$100,000,000.00
1	$40,000,000.00	0.909090909	$36,363,636.36
2	$35,000,000.00	0.826446281	$28,925,619.83
3	$35,000,000.00	0.751314801	$26,296,018.03
4	$15,000,000.00	0.683013455	$10,245,201.83
5	$15,000,000.00	0.620921323	$9,313,819.85
6	$15,000,000.00	0.56447393	$8,467,108.95
7	$15,000,000.00	0.513158118	$7,697,371.77
8	$15,000,000.00	0.46650738	$6,997,610.70
9	$15,000,000.00	0.424097618	$6,361,464.28
10	$25,000,000.00	0.385543289	$9,638,582.24
NPV			$50,306,433.85

Q - 10 - YOUR REQUIRED ANSWER IS OPTION E : 24%

Time	Cashflows
0	-$100,000,000.00
1	$40,000,000.00
2	$35,000,000.00
3	$35,000,000.00
4	$15,000,000.00
5	$15,000,000.00
6	$15,000,000.00
7	$15,000,000.00
8	$15,000,000.00
9	$15,000,000.00
10	$25,000,000.00
IRR	24.02%

I hope this solves your doubt.

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Transcribed Image Text

ABC Manufacturing Company will invest in astamping plant in Madison Ohio. The plant requires aninitial outlay of $100,000,000. Net cash inflows from the projectare expected to be $40,000,000 for the first year, $35,000,000 foryear 2 and 3, and $15,000,000 for years 4 through 10, at which timethe stamping plant will be sold for scrap for $10,000,000. If thestamping plant's cost of capital is 10%:9WhatistheprojectsNPV(closestanswer)52,500,00051,200,00050,300,000d 50,000,00010 What is the project's IRR (closestanswer)20.00%21.00%22.00%d 23.00%e 24.00%