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Chapter $2$ Manager Cost

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$2012\%20$Exam $201-20$Review $(1)\%20-\%20$Tagged.pdf

wlour Analysis

$7/8$

$100\%+$

Capital Investments

A company is evaluating an investment in a fixed asset with a $5-$year life $($no salvage value$).$ Based on the information provided, should the investment go forward?

Investment data:

Year

Investment

Operating Income

$0$

$$100,000$

$1$

$50$

$2$

$$5,000$

$3$

$$5,000$

$4$

$$10,000$

$5$

$$5,000$

Debt cost

$6\mathrm{.}0\%$

Equitycost

WACC

$14\mathrm{.}0\%$

$9\mathrm{.}0\%$

Hurdle Rate

Year Cash Flow

$0$

$1$

$2$

$3$

$4$

$5$

Present Value

PVFormula

cashflow$(1+$i$)\text{'}$n

ASUS

Net Present Value

DO

what is the IRR for this investment?

$2.$an increase in borrowing costs has increased the wacc to $11$ percent. Should they still invest?