Consider two streams of cash flows, A and B. Cash flow A consists of ($5,000) starting three
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Consider two streams of cash flows, A and B. Cash flow A consists of \($5,000\) starting three years from today and growing at 4 percent in perpetuity. Cash flow B consists of \($6,000\) starting two years from today and continuing in perpetuity. Assume the appropriate discount rate is 12 percent.
a. What is the present value of each stream?
b. What is the IRR of a project C, which is a combination of projects A and B; that is, C = A + B?
c. If it is assumed that the discount rate is always positive, what is the rule related to IRR for assessing project C that would correspond to the NPV rule?
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