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The CEO John is responsible for evaluating potential projects and financial decisions. Assume that the discount rate is 20%. His company is considering a shot term project that develops me vehicle design.
project 1 has a cost of $72M today and will generate $108M next year.
Problem 1. Explain the timeline for this project
Problem 2. What is the NPV of the project? Should John accept the project
Problem 3. What is the internal rate of return (IRR)
Project 2 will generate $18M in the first year and this cash flow is expected to grow by 2% each year forever.
Problem 4. Should John accept the project
Problem 5. what is IRR for project 2? Should John accept?
Problem 6. Which of the projects is the best? Project 1 or project 2
Problem 7. Explain why he would choose project 2
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