From Part A above, assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for the initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0-5914253647.335868.25Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume discount rate 17%This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV.Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.

Therefore, the NPV is -$37.41 million and PI is 0.37 times.

Answered: From Part A above, assume that the bank…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2MAD: Assume San Lucas Corporation in MAD 26-1 assigns the following probabilities to the estimated annual...

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From Part A above, assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for the initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years:

Year	Cash Flow ($ million)
0	-59
1	4
2	5
3	6
4	7.33
5	8
6	8.25

Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume discount rate 17%
This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV.
Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.

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