Question
Urgent Please Answer Consider the cash flows on the following two timelines : Timeline One: -210 105 105 105 105 0 1 2 3 4
Urgent Please Answer
Consider the cash flows on the following two timelines :
Timeline One: -210 105 105 105 105
0 1 2 3 4
Timeline Two: -210 130 130 130
0 1 2 3
The appropriate rate of return for the risks in both business opportunities is r = 9%.
The IRR for Timeline One is 34.90%, while the IRR for Timeline Two is higher at 38.71%.
The NPV for Timeline One is $130.17, while the NPV for Timeline Two is lower at $119.07.
Why is the Net Present Value lower on the second transaction compared to the first transaction, even though the IRR on the second transaction is higher?
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Timeline Two has a lower NPV because it has lower risks than Timeline One
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Timeline Two has a lower NPV because it falls short of Market returns for the risks involved for a shorter period of time than does Timeline One
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Timeline Two has a lower NPV because it exceeds Market returns for the risks involved for a shorter period of time than does Timeline One
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none of the choices is correct
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Timeline One has a higher NPV because its discounted returns are higher each year than those of Timeline Two
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