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5. Suppose you are contemplating buying a collector's edition of a John Maynard Keynes Action Figure. You would have to make a down payment today
5. Suppose you are contemplating buying a collector's edition of a John Maynard Keynes Action Figure. You would have to make a down payment today of $1,000 and then pay $1,875 at the end of two years from now (ie year 2). If you buy it today, a year from today ( ie year 1), you would sell the Action Figure for $2,750. Your minimum acceptable rate of return (MARR) is 20%. a. Find the positive breakeven interest rates on your potential investment. (10) b. Determine whether this is a pure investment. (Use only one breakeven interest rate in your calculation - doesn't matter which one). (4) c. Suppose you use the modified internal rate of return MIRR to evaluate investments. Calculate MIRR and determine if you should buy the Action Figure. (Note: use MARR when evaluating both cash inflows and cash outflows). (8) d. Find the True IRR (You may assume that i is such that PB: > 0) and determine if you should buy the Action Figure. (8) 5. Suppose you are contemplating buying a collector's edition of a John Maynard Keynes Action Figure. You would have to make a down payment today of $1,000 and then pay $1,875 at the end of two years from now (ie year 2). If you buy it today, a year from today ( ie year 1), you would sell the Action Figure for $2,750. Your minimum acceptable rate of return (MARR) is 20%. a. Find the positive breakeven interest rates on your potential investment. (10) b. Determine whether this is a pure investment. (Use only one breakeven interest rate in your calculation - doesn't matter which one). (4) c. Suppose you use the modified internal rate of return MIRR to evaluate investments. Calculate MIRR and determine if you should buy the Action Figure. (Note: use MARR when evaluating both cash inflows and cash outflows). (8) d. Find the True IRR (You may assume that i is such that PB: > 0) and determine if you should buy the Action Figure. (8)
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