Question

American Rubber Company is planning to invest in a new assembly plant in Akron, Ohio. The plant requires an initial cash outlay of $100,000,000 dollars. Cash flows from operations are expected to be $30,000,000 every year for the next eight (8) years at which time the plant will be disposed generating a terminal cash inflow of $20,000,000. If American Rubber Company's required rate of return for projects of similar risks is 18% 17 Calculate the project's Net Present Value 32,327,185 b 31,060,125 29,373,076 27,647,736 18 Calculate the project's Internal Rate of Return 27.25% 26.13% 25.04% 24.39% 19 Hooo Ö oooo Calculate the project's Payback Period 6.5 Years 5.25 Years 3.33 Years 2.25 Years

Answer 1

A C YEAR pv @ 18% Cash flows -$100,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 $50,000,000 26.13% IRR(B3:39) 0.84746 0.71818 0.60863 0.51579 0.43711 0.37043 0.31393 0.26604 NPV Discounted cash flows $100,000,000 $25,423,729 $21,545,533 $18,258,926 $15,473,666 $13,113,276 $11,112,946 $9,417,751 $13,301,908 $27,647,735.99 NPV IRR Project's payback period $27,647,736 26.13% 3.33 100000000/30000000