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:
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Year Cash Flow
0 â€“$ 1,180,000
1 355,000
2 420,000
3 315,000
4 270,000
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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 â€œblockedâ€ and must be reinvested with the governmentfor one year. The reinvestment rate for these funds is 4percent.
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If Anderson uses a required return of 8 percent on this project,what are the NPV and IRR of the project?

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4.1 Ratings (676 Votes)

In the current question cash flows are blocked with thegovernment for one yearso cash flows will come after 1 year ofactual earningNET PRESENT VALUE means the difference betweenthe Present value of all cash outflows and present values of allinflows and it will be discounted at the required rate of theanderson ie 8YearCashflowsDiscounting factor See Answer

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Year	Cash Flow
0	â€“$	1,180,000
1		355,000
2		420,000
3		315,000
4		270,000