Question
PLEASE I WILL REALLY APPRECIATE CLEAR AND PRECISE SOLUTION, THESE QUESTIONS SEEM TO BE MESSING WITH MY MIND 1. Consider the following cash flows: C0
PLEASE I WILL REALLY APPRECIATE CLEAR AND PRECISE SOLUTION, THESE QUESTIONS SEEM TO BE MESSING WITH MY MIND
1. Consider the following cash flows:
C0 | C1 | C2 | C3 | C4 |
-22 | +$20 | +$20 | +$20 | +$40 |
Use the IRR function in Excel.
If you input a guess of 5%, the output IRR is -------%
If you input a guess of 20%, the output IRR is -------%
Should you accept the project if the cost of capital is 5% (Yes/No)
Should you accept the project if the cost of capital is 20%? (Yes/No)
Should you accept the project if the cost of capital is 40%? (Yes/No)
2. Project A costs $30,000 and will generate $21,000 for two years. Project B costs $50,000 and will generate $33,000 for two years.
The IRR of project A is ----------%
The IRR of project B is -----------%
Suppose the cost of capital is 10%
If the two projects are independent, which project should be accepted? (A/B/Both/Neither)
If the two projects are mutually exclusive, which project should be accepted? (A/B/Both/Neither)
3. Here are the cash flows for two mutually exclusive projects:
Project | C0 | C1 | C2 | C3 |
A | -20,000 | 8,000 | 8,000 | 8,000 |
B | -20,000 | 0 | 0 | 25,000 |
The IRR of project A is -------%
The IRR of project B is -------%
If the cost of capital is 5%, which project should be accepted? (A/B/Both/Neither)
If the cost of capital is 3%, which project should be accepted? (A/B/Both/Neither)
4. Consider a project with the following cash flows:
Year | Cash flow |
0 | +$100 |
1 | -60 |
2 | -60 |
The IRR of the project is --------% (2 d.p)
If the prevailing interest rate is 12%, should you accept the project?
5. Given the information in the table below, which of the following statements is true? Assume the cost of capital is 15%
Project | Initial investment | Year 1 Cash flow | Year 2 Cash Flow | Year 3 Cash Flow | Year 4 Cash Flow | Year 5 Cash Flow |
A | $1,000,000 | 300,000 | 300,000 | 400,000 | 400,000 | 0 |
B | $1,450,000 | 500,000 | 500,000 | 500,000 | 500,000 | 0 |
C | $2,500,000 | 750,000 | 0 | 0 | 1,000,000 | 3,000,000 |
If these projects are independent, only project C should be accepted.
If these projects are independent, all three projects should be accepted.
Project B has the highest IRR.
If these projects are mutually exclusive, only project B should be accepted.
Project A has the longest payback period
6. Suppose that the annual real interest rate is 8% and the annual inflation rate is 5%.The present value of a $331 nominal cash flow in 4 years is $______.
7. If the rate of return is 3% in the first year, 3% in the second year, and 7% in the third year, then:
the arithmetic average of the three annual rates of return is -------------%
an initial investment of $100 will become $---------- after 3 years:
your 3-year holding rate of return will be -------%
your annualized rate of return will be ---------% (2 decimal places)
8. If you obtain a cost-saving technology for $25,631, you will save $946 in year 1, and the saving will grow at a 4% constant rate forever. The IRR of this investment is ____%
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