Financial Planning and Forecasting

Insigne Corporation is considering two investment projects (projects A and project B) that are mutually exclusive. Project A requires an initial cash out flow of $10,000,000 today and Project B requires an initial cash out flow of $15,000,000 today.  The expected end-of-year cash inflows of each project are given in the following table:

Year Cash Inflow project A Cash Inflow project B
1 3,500,000 7,500,000
2 6,000,000 8,000,000
3 6,000,000 4,000,000
4 9,000,000 4,500,000

Weighted average cost of capital is 13% for both projects.

  1. What is the IRR of each project?
  2. What is the NPV of each project?
  3. What is MIRR of each project?
  4. What is payback of each project?

Which project should Insigne Corporation take? Please explain why

A factory cost $330,000. You forecast that it will produce cash inflows of $105,000 in year 1, $165,000 in year 2, and $270,000 in year 3. The discount rate is 11%.

What is the value of the factory?

Solution:

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