The option of working cooperatively with another company has just been presented
ID: 2719215 • Letter: T
Question
The option of working cooperatively with another company has just been presented. The details of this option are: initial investment of $120,000, net operating cash flows (years 1-3) of 47,000, 49,000 and 52,000 respectively (already takes into account depreciation effect and terminal cash flow so there is no need to calculate depreciation effect or terminal value just use these as-is for your analysis), cost of capital for this project is 8.2%.
1. What is the NPV for the new alternative?
4,515
7,980
6,807
6,343
2. What is the IRR for the new alternative?
11.06%
8%
7.5%
12.12%
Explanation / Answer
Answer:
1.
2.
In $ In $ Year Cash flows Discount factors @8.2%calculation Discount factors @8.2% Discounted cashflow 0 -120000 1 1 -120000 1 47000 1/1.082 (A) 0.92421 43438 2 49000 A/1.082 (B) 0.85417 41854 3 52000 B/1.082 0.78944 41051 NPV = 6343 (Ans)