Problems with IRR Suppose you are offered £5,000 today but must make the following payments:

Year Cash Flows (£)

0 5,000 1 –2,500 2 –2,000 3 –1,000 4 –1,000

(a) What is the IRR of this offer?

(b) If the appropriate discount rate is 10 per cent, should you accept this offer?

(c) If the appropriate discount rate is 20 per cent, should you accept this offer?

(d) What is the NPV of the offer if the appropriate discount rate is 10 per cent? 20 per cent?

(e) Are the decisions under the NPV rule in part

(d) consistent with those of the IRR rule?