Company ABC received a contract from company XYZ, worth $460 million to build a product. XYZ will pay $50 million when the contract is signed, another $360 million at the end of the first year, and the $50 million balance at the end of second year. The expected cash outflows required to produce the product are estimated to be $150 million now, $100 million the first year, and $218 million the second year. The firm’s MARR is 25% for this project.
a) Compute the values of i* for this project.
b) Calculate IRR. Is the project acceptable?