You are evaluating a project in the country of Expropriationstan. You estimate end-of-year cash flows as follows. Assume your discount rate for evaluating projects of this sort in Expropriationstan is 15%.

a. Compute the NPV and IRR of these cash flows. State a reject/accept recommendation.

b. Expropriationstan is trying to improve its economy. You find out that you will be blocked from using any net cash inflows your project generates for one year, and must "reinvest" the cash flows with the government for one year. (The government insists.)

Assume the "reinvestment rate" the government pays while it holds your cash is 5%; after a year, you get the cash flow back along with any accrued interest that was paid by the government. (If you have trouble conceptualizing this, imagine for a moment that the reinvestment rate were instead zero; what would the cash flows look like then?).

Recomputed the NPV and IRR, and make a new reject/accept recommendation.

c. You fear that the Expropriations tani government might lower its country's interest rates, and hence its "reinvestment rate" that it pays. What "reinvestment rate" makes the project zero NPV?

Posted Date: 2/20/2013 12:28:21 AM | Location : United States

Ask an Expert

Related Discussions:- Calculate the npv and irr, Assignment Help, Ask Question on Calculate the npv and irr, Get Answer, Expert's Help, Calculate the npv and irr Discussions

Write discussion on Calculate the npv and irr
Your posts are moderated

Write your message here..

Related Questions

Perfect competition market, what is the short run and long run effects of a... what is the short run and long run effects of a new idea creating by a restaurateur i.e home cooking services in the perfect competitive market?

Explain new trade theory, New trade theory New trade theory

What are the restrictions of lewis, What are the restrictions of Lewis? ... What are the restrictions of Lewis? The restrictions of Lewis: • Assumes complete employment in urban regions. Evidence recommend otherwise • Raised profits may be inves

Production analysis, #quewhat is production analysis stion.. #quewhat is production analysis stion..

Research Methods, A .Develop a researchable topic and prepare a research pr... A .Develop a researchable topic and prepare a research proposal using the layout outlined below. CAVENDISH UNIVERSITY DISSERTATION PROPOSAL LAYOUT TITLE PAGE CHAPTER ONE: INTRODU

Elasticity of telecomunicatio, Is telecommunication is elastic or inelastic... Is telecommunication is elastic or inelastic ???

Investments - policy to overcome the recession, If the Government decreases... If the Government decreases the interest rates on capital goods such as new plant and equipment and building. Investment also include spending on working capital such as stocks of

Is there a consensus view on responsibility of government, Is there a conse... Is there a consensus view on the responsibility of government? Highly controversial and depends onto your view like to whether markets work. International agencies as like the

How can less developed countries economies produced, How can less developed... How can less developed countries economies produced by developing its primary sector as agriculture? Less developed countries economies cannot grow by developing its primary se

What is the function of multinational companies, What is the function of mu... What is the function of multinational companies into the promotion of development? A multinational or transnational (TNCs) company operates within two or more countries across