year CEO Mcintosh is considering an investment option: (20 points) Time Cash Flow A $-4000 Year 1 $-2000 Year 2 $2000 Year 3 $400 Year 4 $8000 Year 5 S-2000 His firm only likes investments with a MARR of 10% or more, in order to decide whether this option is acceptable, the CEO first decides to calculate the IRR of the cash flow stream. He does this by calculating the NPVY) of the cash flow stream given a rate of return (X) and plots the result (generally the point where this plot crosses the x axis is the IRR). The equation he plots is (Y=): Mis plot looks like this: Plots: 2000 2000 400 8000 2000 250090 200000 150000 10000 Sodoo (x from-1.7 to 5) Note: In the above equation, x represents (1+r) i.e. When you gain interest, you multiply your money by (1+r), this is what x represents in the above equation. -50000 (this was done in wolfram alpha: link) Unfortunately, this plot crees the X axis at 3 places! So, it has multiple possible rates of return. These can be seen in the graph, though the exact values show up in the link. The zeroes are approximately: x= (-1.49,0.24, 1.12). The CEO wants to understand what each of these numbers mean. He knows that since * is (1+r) if he were to invest $1 and get an interest rate of X, his money after a single period would change by x. So, for the first rate, i.e. -1.49, this means his $1 of money (assets), would become $1.49 of debt. Similarly, if he waits another period, it will turn into $2.22 of assets since FV-2=1.49(1+i)?. Notice on the even years our negative rate becomes positive. The CEO knows this is impossible, otherwise he could get rid of all his company's debt by investing it here for 1 period. Real interest rates either shrink or grow the investment, they cannot negate it, ie. 0