(Ignore income taxes in this problem.) Hamilton Company invested in a two-year project having an internal rate of return of 12%. The project is expected to produce cash flow from operations of £60,000 in the first year and £70,000 in the second year. The cost of the project is closest to
A)£103,600.
B)£109,400.
C)£116,100.
D)£122,500.

Question

Quizplus · Accepted Answer

The cost of the project can be calculated using the formula for the present value of the cash flows, discounted at the internal rate of return (IRR). The present value (PV) formula is: PV = CF1 / (1+r)^1 + CF2 / (1+r)^2, where CF1 and CF2 are the cash flows in years 1 and 2, respectively, and r is the IRR. Plugging in the given values: PV = £60,000 / (1+0.12)^1 + £70,000 / (1+0.12)^2 = £53,571.43 + £55,829.96 = £109,401.39, which is closest to £109,400.

(Ignore Income Taxes in This Problem