0 1 2 3 4 -$ 589,000 219,000 162,000 227,000 206,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 6 percent. Assume Anderson uses a required return of 12 percent on this project. a. What is the NPV of the project? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the IRR of the project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter21: International Cash Management
Section: Chapter Questions
Problem 3BIC
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-$ 589,000
219,000
162,000
227,000
206,000
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian
government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the
government for one year. The reinvestment rate for these funds is 6 percent. Assume Anderson uses a required return of 12
percent on this project.
a. What is the NPV of the project?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.
b. What is the IRR of the project?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.
Transcribed Image Text:0 1 2 3 4 -$ 589,000 219,000 162,000 227,000 206,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 6 percent. Assume Anderson uses a required return of 12 percent on this project. a. What is the NPV of the project? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the IRR of the project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
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