a) Mr. Abrar plans to invest his savings of Tk 32, 10, 000 for a
project. On the basis of his calculation, the project
is expected to provide the following cash flows Tk 14,65,600,
Tk. 13,55,400, Tk.8,25,100, Tk. 3,50,600, Tk. 10,700
respectively from years one to five. If the hurdle rate is 18%,
should he invest his savings in this project?
Advise him using IRR.
b) East India Company, Inc., is considering investing in
England. It makes a bid to the government to
participate in the development of a mine, the profits of which
will be realized at the end of five years. The
mine is expected to produce $7 million in cash to East India
Company at that time.
Other than the bid at the outset, no other cash flows will
occur, as the government will reimburse the company
for all costs. If East India Company requires a nominal annual
return of 22% percent (ignoring any tax
consequences), what is the maximum bid it should make for the
participation right if interest is compounded
(i) quarterly? (ii) monthly? (iii) weekly (iv) daily?
Plz answer plz