Question - Butler International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
|
Year
|
Cash Flow
|
|
0
|
-$950,000
|
|
1
|
285,000
|
|
2
|
345,000
|
|
3
|
415,000
|
|
4
|
255,000
|
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent.
If Butler uses a required return of 11 percent on this project, what are the NPV and IRR of the project?