Question

He Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year O Cash Flow -$875,000 306,900 287,600 285,300 259,300 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. Assume Anderson uses a required return of 10 percent on this project. a. What is the NPV of the project? (A negative answer should be indicated by a minus. sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Net present value b. Internal rate of return

Answer 1

Year CF Reinvested Year CF Reinvested 0 $ (875,000.00 $ (875,000,000 -875000 I=B2 1 $ 306,900.00 $ 306900 JO 2 $ 287,600.00 $ 319,176.00 2 287600 =B3*1.04 3 $ 285,300.00 $ 299, 104.00 3 285300 =B4*1.04 4 $ 259,300.00 $ 296,712.00 259300 =B5*1.04 $ 269,672.00 || =B6*1.04 NPV $ (16,393.54) NPV TENPV(10%,C3:C7)+C2 | IRR 9.38% IRR EIRR(C2:07) 5.