07 Jan

An investment costs $1, 500 at time 0. In year 1

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Question: An investment costs $1, 500 at time 0. In year 1

 

An investment costs $1,500 at time 0. In year 1, the project will generate $250. In year 2 it will generate $500. Then, the project will generate $400 per year for three straight years. In the following year, the project is expected to be shut down and sold for a net total profit (loss) of $100.

  • If the hurdle rate for this project (based upon risk assessment) is 11%, what is the NPV of the project?
  • If the hurdle rate for the project is 25%, what is the NPV?
  • What is the payback (measured in years)?
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