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Shanghai Shipping Is Considering Investing in a Project That Requires

question 6

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Shanghai Shipping is considering investing in a project that requires an after-tax initial investment of 156 million and is expected to produce after-tax cash inflows of $40 million for each of the next five years. The firm's cost of capital is 10%. Based on this information, the IRR of the project is _________ percent and the firm should _________ the project.


Definitions:

Risk-Free Return

The theoretical return on an investment with no risk of financial loss.

Wildcat Fund

A type of investment fund that takes on high-risk investments, hoping for significantly higher-than-average returns.

M2 Measure

A broad measurement of a country's money supply that includes cash, checking deposits, and easily convertible near money, such as savings deposits and money market securities.

T-Bills

Short-term government securities with maturity periods of one year or less, considered a safe and liquid investment.

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