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Category > Business & Finance Posted 31 Jul 2017 My Price 12.00

1. Respond to the following comments:

1. Respond to the following comments:

a. “I like the IRR rule. I can use it to rank projects without having to specify a discount rate.”

b. “I like the payback rule. As long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects. That reduces risk.”

2. Calculate the IRR (or IRRs) for the following project:

C0

C1

C2

C3

-3,000

+3,500

+4,000

-4,000

For what range of discount rates does the project have positive NPV?

3. Consider the following two mutually exclusive projects:

Cash Flows ($)

Project

C0

C1

C2

C3

A

-100

+60

+60

0

B

-100

0

0

+140

a. Calculate the NPV of each project for discount rates of 0, 10, and 20%. Plot these on a graph with NPV on the vertical axis and discount rate on the horizontal axis.

b. What is the approximate IRR for each project?

c. In what circumstances should the company accept project A?

d. Calculate the NPV of the incremental investment (B - A) for discount rates of 0, 10, and 20%. Plot these on your graph. Show that the circumstances in which you would accept A are also those in which the IRR on the incremental investment is less than the opportunity cost of capital.

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Status NEW Posted 31 Jul 2017 02:07 PM My Price 12.00

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