Anderson International Limited is evaluating a project in Erewhon. The project w

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 3 percent.

If Anderson uses a required return of 13 percent on this project, what are the NPV and IRR of the project? (Negative amount 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.)

NPV $

IRR %

Please show work!

Year Cash Flow 0 -$1,300,000 1 $475,000 2 $540,000 3 $435,000 4 $390,000

Explanation / Answer

NPV = -38,546.86

IRR = 11.96%

13.00% Cash flows Year Discounted CF      (1,300,000.00) 0 -1300000.00                             -   1 0.00            489,250.00 2 383154.51            556,200.00 3 385474.50            448,050.00 4 274797.46            401,700.00 5 218026.67

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