Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. you are planning to invest in a project which cost

You are planning to invest in a project which costs $40 million today. The project...

60.1K

Verified Solution

Question

Finance

You are planning to invest in a project which costs $40 million today. The project will produce returns of $4 million per year for five years and the scrap value will be $20 million. That is, you will receive $4 million at the end of the year, for each of the next five years, and you will receive $20 million at the end of the fifth year.

Question (a) [2 marks] What is the net present value of the project (in $ million) if the cost of capital is 20% per year? $ Answer million

Question (b) [1 mark] Hence or otherwise if the cost of capital is 20% per year, should you invest in the project? Answer. Now suppose that the cost of capital for the project is 12% per year for the first three years, and 4% per year for subsequent years.

Question (c) [2 marks] What is the net present value of the project (in $ million)? $Answer million

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students