Sec B: 14 Marks: Both questions are of 7 marks and are compulsory

Q4. Suppose you are offered $7,000 today but must make the following payments

Year	Cash Flows ($)
0	7,000
1	-3,700
2	-2,400
3	-1,500
4	-1,200

a. What is the IRR of this offer?

b. If the appropriate discount rate is 10%, should you accept this offer?

c. If the appropriate discount rate is 20% should you accept this offer?

d. What is the NPV of the offer if the appropriate discount rate is 10%? 20%?

e. Are the decisions under the NPV rule is part (d) consistent with those of the IRR rule?

Q5. If increases in dividends tend to be followed by (immediate) increases in share price, how can it be said that dividend policy is irrelevant?