core 0 of 1 pt 6 of 11 8 complete HW Score 4924 542 of 11 pt

core: 0 of 1 pt 6 of 11 (8 complete) HW Score: 49.24%, 5.42 of 11 pts Problem 9.LO3.33 (similar to) Question Help * You are considering building a shopping mall. The initial investment is $1.51 million. The cash flows are $500,000 for year 1, $260,000 for year 2, $100,000 for year 3, and $140,000 for year 4. What are the net present value (NPV) and profitability index (Pl) of the project if the cost of capital is 14%? Compute the internal rate of return (IRR) for the project. What is the NPV of the shopping mall? S? (Round to the nearest cent.)

Solution

3.33:

Thus NPV = -$ 720,953.56 (2 decimal places) or -$ 720,953.6 (1 decimal place)

Profitability Index = 1+(NPV/Initial investment required) = 1+(-720953.56/1510000) = 1-0.4775

= 0.5225 (4 decimal places) or 0.52 (2 decimal places)

IRR is the rate which makes the NPV as nil. It has been computed using trial and error method.

Thus 1+r = 0.8142360 or r = 0.8142360-1 = -18.58%. Thus IRR = -18.58%

3.34:

  

Thus payback = 4+(15000/20000) = 4.75 years. Payback = 4.75 years

NPV:

NPV = $33,353.15

PI =  1+(NPV/Initial investment required) = 1+(33353.154/95000) = 1.35

Thus PI = 1.35

IRR:

Thus IRR = 16.47%

3.21: The answer is option \"C\' - The discount rate that sets NPV to 0.

Year	Cash flow (in $)	1+r	PVIF	PV
0	-1,510,000.00	1.14	1.0000	-1,510,000.00
1	500,000.00		0.8772	438,596.49
2	260,000.00		0.7695	200,061.56
3	100,000.00		0.6750	67,497.15
4	140,000.00		0.5921	82,891.24
			NPV	-720,953.56