Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash...

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Finance

Anderson International Limited is evaluating a project inErewhon. The project will create the following cash flows:
Year Cash Flow
0 –$ 1,275,000
1 435,000
2 505,000
3 415,000
4 345,000
All cash flows will occur in Erewhon and are expressed indollars. In an attempt to improve its economy, the Erewhoniangovernment has declared that all cash flows created by a foreigncompany are “blocked” and must be reinvested with the governmentfor one year. The reinvestment rate for these funds is 4percent.
If Anderson uses a required return of 11 percent on thisproject, what are the NPV and IRR of the project? (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and round your answers to 2 decimalplaces, e.g., 32.16. Enter your IRR as a percent.)

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4.1 Ratings (759 Votes)

First we need to find the future value of the cash flows for the one year in which they are blocked by the government So reinvesting each cash inflow for one year we See Answer

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Anderson International Limited is evaluating a project inErewhon. The project will create the following cash flows:YearCash Flow0–$1,275,0001435,0002505,0003415,0004345,000All cash flows will occur in Erewhon and are expressed indollars. In an attempt to improve its economy, the Erewhoniangovernment has declared that all cash flows created by a foreigncompany are “blocked” and must be reinvested with the governmentfor one year. The reinvestment rate for these funds is 4percent.If Anderson uses a required return of 11 percent on thisproject, what are the NPV and IRR of the project? (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and round your answers to 2 decimalplaces, e.g., 32.16. Enter your IRR as a percent.)