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A) BigBox spends $2M in developing a new product It expects a retur

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a) BigBox spends $2M in developing a new product. It
expects a return stream of $1M after year 1, $2M year 2
and $2M after year 3 when the project will end. At a MARR
of 10%, what is the PW of the project, to the nearest
$100,000 (such as 3.3 for 3.3M)?
b)For the above project, what is its IRR to 1 decimal
place?
Solution
Hi,
Please find the detailed answer as follows:
Part A:
Present Worth = -2 + 1/(1+10%)^1 + 2/(1+10%)^2 +
2/(1+10%)^2 = $2.2 million
------
Part B:
To calculate IRR, you need to put the value of NPV as 0
and solve for r as follows:
NPV = 0 = -2 + 1/(1+10%)^1 + 2/(1+10%)^2 + 2/(1+10%)^2
Solving for r, we get IRR as 55.58% or 55.6%
IRR is 55.6%
Thanks.

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a) BigBox spends $2M in developing a new product. It expects a return stream of $1M after year 1, $2M year 2 and $2M after year 3 when the project will end. At a MARR of 10%, what is the PW of the project, to the nearest $100,000 (such as 3.3 for 3.3M)? b)For the above project, what is its IRR to 1 decimal place? Solution Hi, Please find the detailed answer as follows: Part A: Present Worth = -2 + 1/(1+10%)^1 + 2/(1+10%)^2 + 2/(1+10%)^2 = $2.2 million -----Part B: To calculate IRR, you need to put the value of NPV as 0 and solve for r as follows: NPV = 0 = -2 + 1/(1+10%)^1 + 2/(1+10%)^2 + 2/ ...
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Anonymous
Awesome! Perfect study aid.

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