1. It’s time to build a new call center. It looks like the center will cost $10.5 million to build and generate cash flows of $2 million the first year, $3 million per year for the next two years, $4 million per year for the following two years, and $2 million in its final year of operation. If your required return is 12%, what is the NPV of building the new center?
A. $0.201 million
B. -$0.510 million
C. $22.638 million
D. $1.638 million
2. The consulting firm your boss hired has said that you should invest $1 million into a new personnel management system that will reduce your overhead costs by $200,000 per year for the first three years, then $400,000 the next year, and $500,000 in the final year. If your firm has a required return of 15%, what is the IRR of the new system?
A. 12.62%
B. 19.42%
C. 9.57%
D. 18.04%