Question 3) Assume that you are the CEO of a company. And a subordinate who works...

 

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Question 3) Assume that you are the CEO of a company. And a subordinate who works for your company came up with a project where expected cash flows are as follows: Year 0 = -$100,000 Year 1 = $0 Year 2 = $0 Year 3 = $0 Year 4 = $0 Year 5 = $101,000 The subordinate claims that the company will make $1,000 profit, therefore urges you to approve the project. As the CEO of the company, how should you convince the subordinate that it is not appropriate to undertake this project? In your answer, please make sure to discuss the effects of inflation (assume that it is around 2%), the prevalent interest rates in the market (assume that it is at least 5%), the company's internal rate of return (assume that it is at least 10%), and the risk factors (think broadly). [50 Marks] Question 3) Assume that you are the CEO of a company. And a subordinate who works for your company came up with a project where expected cash flows are as follows: Year 0 = -$100,000 Year 1 = $0 Year 2 = $0 Year 3 = $0 Year 4 = $0 Year 5 = $101,000 The subordinate claims that the company will make $1,000 profit, therefore urges you to approve the project. As the CEO of the company, how should you convince the subordinate that it is not appropriate to undertake this project? In your answer, please make sure to discuss the effects of inflation (assume that it is around 2%), the prevalent interest rates in the market (assume that it is at least 5%), the company's internal rate of return (assume that it is at least 10%), and the risk factors (think broadly). [50 Marks]

Answer rating: 100% (QA)

One of the key considerations as a CEO when making decisions around projects is the companys interna... View the full answer