Maple Industries accepts projects earning more than the firms 13% cost of capital. Maple is currently considering
Question:
Maple Industries accepts projects earning more than the firm’s 13% cost of capital. Maple is currently considering a 12-year project that provides annual cash inflows of £18,000 and requires an initial investment of £120,000.
a. Determine the IRR of this project. Is it acceptable?
b. Assuming that the cash inflows remain at £18,000 per year, how many additional years would the flows have to continue to make the project acceptable (i.e., to make it have an IRR of 13%)?
c. With a 12-year life, an initial investment of £120,000, and a cost of capital of 13%, what is the minimum annual cash inflow the investment would have to provide in order for this project to make sense for Maple’s shareholders?
Step by Step Answer:
Principles Of Managerial Finance
ISBN: 9781292400648
16th Global Edition
Authors: Chad Zutter, Scott Smart