Question
Assume that an investment has the cash flows shown in the table below Year Cashflow 0 -1000 1 400 2 300 3 700 4 600
Assume that an investment has the cash flows shown in the table below
Year | Cashflow |
0 | -1000 |
1 | 400 |
2 | 300 |
3 | 700 |
4 | 600 |
5 | 800 |
6 | 100 |
7 | 200 |
8 | 360 |
9 | 500 |
10 | -3660 |
2.1) Plot the graph of NPV versus discount rate (assume interest rates in the range 0%-100%) and estimate the IRR of the graph. What do you notice?
2.2) Now consider an investment plan where for t=0,5,6,7,10 the signs of the cashflows are reversed. What happens to the IRR?
2.3) Repeat 2.1 with the original cash flow table, assuming that for t=10 we have a positive cash flow (+3660). What do you notice on the graph?
2.4) For the cash flow table below, calculate in detail (not using Excel ) the IRR by solving the related polynomial equation.
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International Financial Reporting and Analysis
Authors: David Alexander, Anne Britton, Ann Jorissen
5th edition
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