2. Consider the following stream of cash flows:

A) For the timeline above, plot the NPV (on the vertical axis) versus the discount rate (on the horizontal axis) using discount rates of: -95%, -30%, 0%, 15% and 40%. From the graph, how many IRRs does there appear to be?

B) Using Excel's IRR command, determine all the IRRs associated with the timeline. (Note: Recall that Excel's IRR command allows for optional second entry that serves as a guess to the IRR. You'll want to vary this entry to find different IRR's. The IRR command will search in a "neighborhood" around your guess. If you don't enter a second value as an IRR guess, then Excel looks in a neighborhood around 10%. What is the largest IRR you found? What is the smallest IRR you found?

C) If the effective annual expected return on this investment is 15%, should the investment be undertaken?

1 2 3 5 6 Years 1 2 3 5 6 Years