Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume interesr rate is 13% This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.
Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume interesr rate is 13% This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.
Chapter14: Multinational Capital Budgeting
Section: Chapter Questions
Problem 1IEE
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From Part A above, assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years:
Year | Cash Flow ($ million) |
0 | -59 |
1 | 4 |
2 | 5 |
3 | 6 |
4 | 7.33 |
5 | 8 |
6 | 8.25 |
- Calculate the
Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume interesr rate is 13% - This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV.
- Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.
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