Final answer:
The question requires an understanding of NPV and IRR, which are used in finance to assess the profitability of investments. NPV is calculated by discounting future cash flows to their present value and then summing them, while IRR is the rate at which an investment's NPV is zero. Decisions to invest are typically based on whether the NPV is positive, indicating expected profitability.
Step-by-step explanation:
The question pertains to the calculation of Net Present Value (NPV) and Internal Rate of Return (IRR), which are fundamental concepts in finance and capital budgeting. The NPV represents the sum of present values (PV) of cash flows at a given interest rate. When calculating NPV, you discount future cash flows back to their value in today's dollars, using a specific discount rate, which in this scenario is 15%. To calculate the present value of each amount, you would use the formula: Present Value = Future Value / (1 + Interest Rate)Number of Years. For instance, for a payment of $25 million received in two years, the present value would be $25 million / (1 + 0.15)2. After calculating the PV of all cash flows, you would sum them up to get the total NPV.
Similarly, IRR is the interest rate at which the NPV of all cash flows (both incoming and outgoing) from a project or investment equals zero. It is the expected compound annual rate of return that will be earned on a project or investment. The IRR can be found using financial calculators or software designed for this purpose, as it requires iterative calculation. After determining the NPV, one would typically decide to make the investment if the NPV is positive, because it suggests that the investment is expected to generate more cash than the cost of the investment, adjusted for the time value of money.