You have been offered a very lon term investment opportunity to increase your money one hundredfold. You can invest $1,100 today and expect to receive 110,000 in 40 years. You cost of capital for this very risky opportunity is 16%.

What does the IRR rule say about whether the investment should be undertaken?

What about the NPV rule?

Do they agree?

What is the IRR?

The IRR of this investment opportunity is ___% round to one decimal

Elmdale Enterprises is deciding whether to expand its production facilities. Although long term cash flows are difficult to estimate, management has projected the following cash flows for the first 2 yrs (in millions)

Year 1 Year 2

Revenues 111.2 164.1

COGS and operating Exp (other than depreciation) 42.2 59.3

Depreciation 29.8 31.4

Increase in working capital 3.1 8.2

Capital Expenditures 29.3 43.1

Marginal corporate tax rate 32% 32%

a. What are the incremental earnings for this project for years 1 and 2?

b. What are the free cash flows for this project for the first two years

c. The incremental earnings for year 1 is $ million (round to one decimal)