Question
The following table shows the forecast cash flows for two projects: C0C0 C1C1 C2C2 C3C3 C4C4 C5C5 A $1,070 $27 $27 $27 $27 $1,256 B
The following table shows the forecast cash flows for two projects:
| C0C0 | C1C1 | C2C2 | C3C3 | C4C4 | C5C5 | |
|---|---|---|---|---|---|---|
| A | $1,070 | $27 | $27 | $27 | $27 | $1,256 |
| B | 1,070 | 71 | 71 | 1,085 |
Now suppose that the term structure is upward sloping and investors demand a higher return on the more distant flows as in the following table:
| t | |||||
|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | 5 | |
| rtrt | 4.0% | 4.5% | 5.0% | 5.5% | 6.0% |
a-1. Calculate the IRR on the two projects.
a-2. Calculate the NPV on the two projects.
a-3. Do the two measures give the same ranking for the two projects?
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Practical Finance For Property Investment
Authors: Craig Furfine
1st Edition
036733304X, 978-0367333041
