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MANAGERIAL FINANCE Task 2 - Project Evaluation STUDENT ID

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Added on  2021-05-31

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At t =0, the initial investment has been estimated to the tune of $ 3 million From the period (t=1 to t=10), the after tax cash inflows are expected to be about $ 0.7 million Also, at t=5, there would an one time incremental outflow to the tune of $ 2 million Further, at t=10, post tax scrap value would result in the inflow to the tune of $ 0.2 million Therefore, based on the above the timeline for the

MANAGERIAL FINANCE Task 2 - Project Evaluation STUDENT ID

   Added on 2021-05-31

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MANAGERIAL FINANCE Task 2 - Project Evaluation STUDENT ID_1
Question 1a)The following information is provided about the project cashflows.At t =0, the initial investment has been estimated to the tune of $ 3 millionFrom the period (t=1 to t=10), the after tax cash inflows are expected to be about $ 0.7 millionAlso, at t=5, there would an one time incremental outflow to the tune of $ 2 millionFurther, at t=10, post tax scrap value would result in inflow to the tune of $ 0.2 millionTherefore, based on the above the timeline for the expected cash flow related to the given project is summarised in the tabular format below.b)The discount rate for the given project is taken as 10% for computation of the project NPVwhich can be highlighted as follows.
MANAGERIAL FINANCE Task 2 - Project Evaluation STUDENT ID_2
The table highlighted above clearly highlights that the project NPV would be $ 0.14 million.As the project NPV has come out as greater than zero, thereby the project must be undertakenas acceptance of this would enhance the value of shareholders’ wealth by $ 0.14 million(Northington, 2015).c)The discount rate which yields NPV as zero is called the IRR. The calculation of IRRbased on the project data is indicated as follows.The IRR has been derived as 11.04%. Clearly, this tends to exceed the discount rate for thisproject and thus it is concluded that according to this criterion, the project would beconsidered as feasible (Damodaran, 2014).
MANAGERIAL FINANCE Task 2 - Project Evaluation STUDENT ID_3

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