International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Year
Cash Flow
0
–$591,000
1
221,000
2
164,000
3
229,000
4
208,000
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. Assume Anderson uses a required return of 12 percent on this project.
a.
What is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.
What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Butler International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Year
Cash Flow
0
–$
1,170,000
1
345,000
2
410,000
3
305,000
4
260,000
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 3 percent.
If the company uses a required return of 7 percent on this project, what are the NPV and IRR of the project? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a percent.)
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Year
Cash Flow
0
−$ 584,000
1
214,000
2
157,000
3
222,000
4
201,000
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 5 percent. Assume Anderson uses a required return of 11 percent on this project.
What is the NPV of the project?
Note: 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.
What is the IRR of the project?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
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Similar questions
- The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: A. What is the payback period of this uneven cash flow? B. Does your answer change if year 10s cash inflow changes to $500,000?arrow_forwardAnderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$ 1,170,000 1 345,000 2 410,000 3 305,000 4 260,000 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 3 percent. If Anderson uses a required return of 7 percent on this project, what are the NPV and IRR of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR as a percent.)arrow_forwardEvaluating projects with unequal lives Tasty Tuna Corporation is a U.S. firm that wants to expand its business internationally. It is considering potential projects in both Germany and Thailand, and the German project is expected to take six years, whereas the Thai project is expected to take only three years. However, the firm plans to repeat the Thai project after three years. These projects are mutually exclusive, so Tasty Tuna Corporation’s CFO plans to use the replacement chain approach to analyze both projects. The expected cash flows for both projects follow: Project: German Year 0: –$800,000 Year 1: $380,000 Year 2: $400,000 Year 3: $420,000 Year 4: $375,000 Year 5: $110,000 Year 6: $85,000 Project: Thai Year 0: –$475,000 Year 1: $225,000 Year 2: $235,000 Year 3: $255,000 If Tasty Tuna Corporation’s cost of capital is 10%, what is the NPV of the German project? a.)$535,797 b.)$563,997 c.)$507,597 d.)$451,198…arrow_forward
- The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: Year Cash Outflow Cash Inflow 1 $1,900,000 $105,000 2 555,000 205,000 3 355,000 4 475,000 5 505,000 6 595,000 7 590,000 8 295,000 9 255,000 10 255,000 A. What is the payback period of this uneven cash flow? Round your answer to 2 decimal places. fill in the blank 1 years B. Does your answer change if year 10's cash inflow changes to $500,000? The answer for part A if the cash inflow in year 10 changes to $500,000.arrow_forwardDrysdale Co. (a U.S. firm) is considering a new project that would result in cash flows of 5 million Argentine pesos in 1 year under the most likely economic and political conditions. The spot rate of the Argentina peso in 1 year is expected to be $.40 based on these conditions. However, it wants to also account for the 10 percent probability of a political crisis in Argentina, which would change the expected cash flows to 4 million Argentine pesos in 1 year. In addition, it wants to account for the 20 percent probability that the exchange rate may only be $.36 at the end of 1 year. These two forms of country risk are independent. Drysdale’s required rate of return is 25 percent and its initial outlay for this project is $1.4 million. Show the distribution of possible outcomes for the project’s net present value (NPV).arrow_forwardThe management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: Year Cash Outflow Cash Inflow 1 $1,900,000 $100,000 2 550,000 200,000 3 360,000 4 480,000 5 510,000 6 600,000 7 590,000 8 300,000 9 250,000 10 250,000 a. what is the payback period of this uneven cash flow? b. does your answer change if year 10's cash inflow changes to $500,000?arrow_forward
- Capital Budgeting Analysis A project in South Korea requires an initial investment of 2 billion South Korean won. The project is expected to generate net cash flows to the subsidiary of 3 billion and 4 billion won in the 2 years of operation, respectively. The project has no salvage value. The current value of the won is 1,100 won per U.S. dollar , and the value of the won is expected remain constant over the next 2 years.arrow_forwardThe management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: Year Cash Outflow Cash Inflow Cumulative Years Remaining Investment 1 $1,900,000 $100,000 1 $ 2 550,000 200,000 2 3 360,000 3 4 480,000 4 5 510,000 5 6 600,000 6 7 590,000 8 300,000 9 250,000 10 250,000 Complete the missing information. For the payback period, round to the nearest hundredth, two decimal places.arrow_forwardPayback: Quebec, Inc., is purchasing machinery at a cost of $3,768,966. The company's management expects the machinery to produce cash flows of $979,225, $1,158,886, and $1,881,497 over the next three years, respectively. What is the payback period?arrow_forward
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