Finance Assignment | Professional Writing
May 29th, 2020
8. (5 points) A project needs an initial investment of $100k for t = 0 and $80 for t = 1 yr. Outcomes include: • 40% success that leads to an annual profit of $50k for eight years. No salvage value. • 60% chance to fail. No income, but a salvage value of $120k at the end of year
2. Step I CF diagram 409 -100-80 50 50 60% -100 -86 0 … 0 1 2 3 Expected IRR for the project was calculated to be 6.95% in class, which is below the minimum ROR of 10%. To improve the economics, one proposed that escalation of incomes could increase the expected IRR and elevate the project to be economically satisfactory Would you agree with the proposed idea? • Yes • No
