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ABC Manufacturing Company will invest in a stamping plant in Madison Ohio. The plant requires an initial...

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Finance

ABC Manufacturing Company will invest in astamping plant in Madison Ohio. The plant requires an
initial outlay of $100,000,000. Net cash inflows from the projectare expected to be $40,000,000 for the first year, $35,000,000 foryear 2 and 3, and $15,000,000 for years 4 through 10, at which timethe stamping plant will be sold for scrap for $10,000,000. If thestamping plant's cost of capital is 10%:

9WhatistheprojectsNPV(closestanswer)

52,500,000

51,200,000

50,300,000

d 50,000,000

10 What is the project's IRR (closestanswer)

20.00%

21.00%

22.00%

d 23.00%

e 24.00%

Answer & Explanation Solved by verified expert
4.1 Ratings (743 Votes)

Hello Sir/ Mam

Q - 9 - YOUR REQUIRED ANSWER IS OPTION C : 50,300,000

Time Cashflows PVF PV
0 -$100,000,000.00 1 -$100,000,000.00
1 $40,000,000.00 0.909090909 $36,363,636.36
2 $35,000,000.00 0.826446281 $28,925,619.83
3 $35,000,000.00 0.751314801 $26,296,018.03
4 $15,000,000.00 0.683013455 $10,245,201.83
5 $15,000,000.00 0.620921323 $9,313,819.85
6 $15,000,000.00 0.56447393 $8,467,108.95
7 $15,000,000.00 0.513158118 $7,697,371.77
8 $15,000,000.00 0.46650738 $6,997,610.70
9 $15,000,000.00 0.424097618 $6,361,464.28
10 $25,000,000.00 0.385543289 $9,638,582.24
NPV $50,306,433.85

Q - 10 - YOUR REQUIRED ANSWER IS OPTION E : 24%

Time Cashflows
0 -$100,000,000.00
1 $40,000,000.00
2 $35,000,000.00
3 $35,000,000.00
4 $15,000,000.00
5 $15,000,000.00
6 $15,000,000.00
7 $15,000,000.00
8 $15,000,000.00
9 $15,000,000.00
10 $25,000,000.00
IRR 24.02%

I hope this solves your doubt.

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Transcribed Image Text

ABC Manufacturing Company will invest in astamping plant in Madison Ohio. The plant requires aninitial outlay of $100,000,000. Net cash inflows from the projectare expected to be $40,000,000 for the first year, $35,000,000 foryear 2 and 3, and $15,000,000 for years 4 through 10, at which timethe stamping plant will be sold for scrap for $10,000,000. If thestamping plant's cost of capital is 10%:9WhatistheprojectsNPV(closestanswer)52,500,00051,200,00050,300,000d 50,000,00010 What is the project's IRR (closestanswer)20.00%21.00%22.00%d 23.00%e 24.00%

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