Barrett Pharmaceuticals is considering a drug project that costs $ 2.5 million today and is expected to generate end-of-year annual cash flows of $ 227,000, forever. At what discount rate would Barrett be indifferent between accepting or rejecting the project?
Answer to relevant QuestionsGiven an interest rate of 6.1 percent per year, what is the value at Date t = 7 of a perpetual stream of $ 2,500 annual payments that begins at Date t = 15?What are some of the difficulties that might come up in actual applications of the various criteria we discussed in this chapter? Which one would be the easiest to implement in actual applications? The most difficult? An investment project costs $ 15,000 and has annual cash flows of $ 3,800 for six years. What is the discounted payback period if the discount rate is 0 percent? What if the discount rate is 10 percent? If it is 15 percent?Cutler Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow0 ......... -$ 85,000,0001 ......... 125,000,0002 ......... - 15,000,000a. If the company ...This problem is useful for testing the ability of financial calculators and computer software. Consider the following cash flows. How many different IRRs are there? Year Cash Flow0 ......... -$ 1,0081 ......... ...
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