Project X requires a single investment today and is expected to generate a cash-flow of $80,000 in one year. The cash-flow is then expected to grow at 7% per year in perpetuity. The IRR is 20% and the cost of capital is 15%.
What is the project’s investment cost?
Calculate the project’s NPV.
Calculate the project’s Profitability Index.
Is the simple payback period shorter than 7 years?
Is the discounted payback period shorter than 7 years?
Project Y has the same cash-flows as project X in all years, except for two years: project Y requires two major refits, at t = 10 and t = 20, each costing the company $400,000. What is the maximum number of positive IRRs that project Y can have, according to the rule of signs?