Assume that you are thinking over an investment into a six-year project in the value of 2
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Question:
- Assume that you are thinking over an investment into a six-year project in the value of 2 million CZK. It is expected that the investment will generate following cash-flows: years 1 - 3 = 600,000 CZK, years 4 - 6 = 400,000 CZK. WACC equals to 10%. Calculate the net present value of the future cash-flows, payback period and discounted payback period. We also assume that cash-flows in given years are balanced.
- Consider the following cash flows from two mutually exclusive investments and decide which one to choose if your required rate of return were 10%? Cross selection point is 2,55 %. Which project would you choose if you required rate of return was 2 %? What is the NPV of both projects? IRR Project A = 20 %, IRR Project B = 38 %.
Year | 0 | 1 | 2 | 3 | 4 |
Project A |
| 20 | 10 | 25 | 255 |
Project B |
| 100 | 60 | 70 | 70 |
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