Consider a project generating the following cash flows over sixyears:
Year Cash Flow (R in millions)
0 -59.00
1 4.00
2 5.00
3 6.00
4 7.33
5 8.00
6 8.25
Required:
1. Calculate the NPV over six years. The discount rateis 11%.
2. This project does not end after the sixth year butinstead will generate cash flows far into the future. Estimate theterminal value, assume that cash flows after year 6 will continueat R8.25 million per year in perpetuity, and then recalculate theinvestment's NPV.
3. Calculate the terminal value, assume that cash flowsafter the sixth year grow at 2% annually in perpetuity, and thenrecalculate the investment's NPV.
