Calculation Of Present Value And Internal Rate Of Return Of A Project

Question

Your company is planning to install a new facility in its Edmonton plant for manufacturing air cleaning equipment for coal fired power stations. The project life is 8 years. MARR (the minimum attractive rate of return) is i%. The anticipated after tax' cash flows of the project (in millions of dollars) are given below:

End of year

0

1

2

3

4

5

6

7

8

Cashflow

-6.5

2.0

2.0

2.0

X+2.0

2.0

2.0

2.0

Y+2.0

Determine:

  • the value of Y if the present value of the project is $4,600,000, X = 0 and I = 12% (monthly compounding)
  • the present value of the Project if Y = X, the equivalent uniform annual value of the project is 1.5X and I = 10% (yearly compounding)
  • the value of Y if X = 0, i = 10% (yearly compounding) and the external rate of return of the Project is 20%
  • the internal rate of return if X = -3.0 and Y =1.0
  • the minimum value of X that would make the project (economically) acceptable if i = 10 % (yearly compounding) and Y = 4X

Summary

The question belongs to Finance and it discusses about calculation of present value and internal rate of return for a project.

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