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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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