Trilever is planning to establish a new factory overseas. The project requires an initial investment of $15 million. Management intends to run this factory for six years and then sell it to a local entity. Trilever”s finance department has estimated the following yearly cash flows:
|
Year |
Cash Flow |
|
0 |
-$15,000,000 |
|
1 |
$4,000,000 |
|
2 |
$4,000,000 |
|
3 |
$4,000,000 |
|
4 |
$4,000,000 |
|
5 |
$4,000,00O |
|
6 |
$7,000,000 |
Trilever”s CFO decides that the company”s cost of capital of 19 percent is an appropriate hurdle rate for this project.
A. Calculate the internal rate of return of this project.
B. Make a recommendation to the CFO concerning whether to undertake this project.