Ch 11- Assignment - The Basics of Capital Budgeting the annual net cash flows expected to be generated by Project Delts. They are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $1,800,000 $3,375,000 $3,375,000 $3,375,000 The CFO has asked you to compute Project Delta's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR. • The level of risk exhibited by Project Delta is the same as that exhibited by the company's average project, which means that Project Delta's net cash flows can be discounted using Blue Hamster's 9% WACC stay the same increase decrease Given the data and A project's I will ta's initial investment in if the project's cash inflows increase, and everything else is unaffected. 450,000 400,000 (rounded to the nearest whole dollar). Grade It Now Save & Continue 4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $600,000. The project's expected cash flows are: Year Cash Flow Year 1 $325,000 Year 2 -125,000 Year 3

Solved: Ch 11- Assignment - The Basics of Capital Budgeting the annual net cas

Home
questions and answers
ch 11 assignment the basics of capital budgeting the annual net cash f

Question

Ch 11- Assignment - The Basics of Capital Budgeting the annual net cash flows expected to be generated by Project Delts. They are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $1,800,000 $3,375,000 $3,375,000 $3,375,000 The CFO has asked you to compute Project Delta's initial investment using the information currently av