A Company Just Paid $10 Million for a Feasibility Study

A company just paid $10 million for a feasibility study. If the company goes ahead with the project, it must immediately spend another $100 million now, and then spend $20 million in one year. In two years it will receive $80 million, and in three years it will receive $90 million. If the cost of capital for the project is 11 percent, what are the project's NPV and IRR?

A) NPV = $2.72 million; IRR = Two positive IRRs.
B) NPV = $2.72 million; IRR = 16%.
C) NPV = $12.72 million; IRR = Two positive IRRs.
D) NPV = $12.72 million; IRR = 16%.
E) None of the above.

Correct Answer:

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