A company is planning to start an investment, which will cost an initial investment of $215 million.
Question:
A company is planning to start an investment, which will cost an initial investment of $215 million. Management has already forecast all future cash flows for this project: $55 million each year in the first 3 years, $50 million in the last 4 years. At the end of year 4 the machine will have to be overhauled, which will cost $65 million. The investment (machinery, etc.) will be sold at the end of year 7 for a price of 45 million dollars.
a) Calculate the Internal Rate of Return.
b) Given a nominal annual MARR of 13%, compounded annually: should the company accept this investment or not?
SOLVE IN EXCEL, SHOW THE FORMULAS USED AND THE DETAILED PROCEDURE.
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw