Anderson International Limited is evaluating a project in Erewhon. The project w
ID: 2731225 • Letter: A
Question
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: 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 6 percent. Assume Anderson uses a required return of 12 percent on this project. What is the NPV of the project? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)Explanation / Answer
IRR = 12% + 1.080 i.e 13.080%
Particulars Year Cash Flows PVF @ 12% PV PVF @ 20% PV @ 20% Cash Flows 0 -581000 1 -581000 1 (581,000) Cash Flows 1 211000 0.89 188,393 0.83 175,833 Cash Flows 2 154000 0.80 122,768 0.69 106,944 Cash Flows 3 219000 0.71 155,880 0.58 126,736 Cash Flows 4 198000 0.64 125,833 0.48 95,486 Net Present value 11,873 (76,000)