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Q5. An investment project requires an immediate investment of $19 million. In return, it pays...

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Accounting

Q5. An investment project requires an immediate investment of $19 million. In return, it pays $2 million in the year 1, with cash flows decreasing by 3.5% per year after that and lasting forever. The market interest rate is 11%.

Compute the NPV of the project. Should the company take it?

  • A. -$5.21 million; Yes, the company should take it.

  • B. -$10.51 million; Yes, the company should take it.

  • C. -$10.51 million; No, the company shouldn't take it.

  • D. -$5.21 million; No, the company shouldn't take it.

Q6. Use the information provided in Q5: Compute the IRR of the project. Should the company take the project?

  • A. IRR = 7.03% > 3.5%; Yes, the company should take it.

  • B. IRR = 7.03% < 11%; No, the company shouldn't take it.

  • C. IRR = 11.53% > 11%; Yes, the company should take it.

  • D. IRR = 11.53% > 3.5%; Yes, the company should take it.

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