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| Teaching Since: | May 2017 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
1. Consider a project with the following cash flows:
|
C0 |
C1 |
C2 |
|
-100 |
+200 |
-75 |
a. How many internal rates of return does this project have?
b. Which of the following numbers is the project IRR:
(i) -50%; (ii) -12%; (iii) +5%; (iv) + 50%?
c. The opportunity cost of capital is 20%. Is this an attractive project? Briefly explain.
2. Consider projects Alpha and Beta:
|
Cash Flows ($) |
||||
|
Project |
C0 |
C1 |
C2 |
IRR (%) |
|
Alpha |
-400,000 |
+241,000 |
+293,000 |
21 |
|
Beta |
-200,000 |
+131,000 |
+172,000 |
31 |
The opportunity cost of capital is 8%. Suppose you can undertake Alpha or Beta, but not both. Use the IRR rule to make the choice. ( Hint: What’s the incremental investment in Alpha?)
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