Company ABC received a contract from company XYZ, worth $460 million to build a

Question

Company ABC received a contract from company XYZ, worth $460 million to build a product. XYZ will pay $50 million when the contract is signed, another $360 million at the end of the first year, and the $50 million balance at the end of second year. The expected cash outflows required to produce the product are estimated to be $150 million now, $95 million the first year, and $218 million the second year. The firm’s MARR is 27% for this project.

a) Compute the values of i* for this project.

b) Calculate IRR. Is the project acceptable?

Explanation / Answer

there will be two values for IRR 5% and 60%

Company should accept this project because NPV is positive at 27% MARR.  

0 1 2 Cashflow $          (100.00) $          265.00 $        (168.00) Present Value $          (100.00) $          208.66 $        (104.16) Net Present Value $            4.5012 IRR 5.0%

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.