P7-2 (similar to) Question Help You are considering investing in a start up comp
ID: 2791435 • Letter: P
Question
P7-2 (similar to)
Question Help
You are considering investing in a start up company. The founder asked you for
$260,000
today and you expect to get
$930,000
in
9
years. Given the riskiness of the investment opportunity, your cost of capital is
26%.
What is the NPV of the investment opportunity? Should you undertake the investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
What is the NPV of the investment opportunity?
The NPV of the investment is
$nothing.
(Round to the nearest dollar.)
P7-2 (similar to)
Question Help
Explanation / Answer
Using Financial Calculator
CF0=-260000 (press enter) Press down key
CF1= 0 (press enter) Press down key
CF2= 0 (press enter) Press down key
CF3= 0 (press enter) Press down key
CF4= 0 (press enter) Press down key
CF5= 0 (press enter) Press down key
CF6= 0 (press enter) Press down key
CF7= 0 (press enter) Press down key
CF8= 0 (press enter) Press down key
CF9= 930000 (press enter) Press down key
Press NPV
Interest =26
Scroll down
Press CPT and NPV
NPV=-143815.54
Press IRR+CPT
IRR=15.21%
Using excel
Year cash flow 0 -260000 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 930000 NPV -143815.54 IRR 15.21%Related Questions
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