Homework Answers
We will use NPV and IRR formula to calculate as per image attached.
The cash flows are
| Year | Cash flows |
| 0 | -4.98 |
| 1 | 1.05 |
| 2 | 1.05 |
| 3 | 1.05 |
| 4 | 1.05 |
| 5 | 1.05 |
| 6 | 1.05 |
| 7 | 1.05 |
| 8 | 1.05 |
| 9 | 1.05 |
| 10 | 1.05 |
a:
| Rate | NPV in millions |
| 6.10% | 2.711609 |
| 1.50% | 4.703294 |
| 13.60% | 0.583504 |
b: IRR is 16.51%
Since IRR is greater than the cost of capital, the project should be undertaken.
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