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1.) Genuine Producs Inc. requires a new machine. Two companies have submitted bi

ID: 2704498 • Letter: 1

Question

1.) Genuine Producs Inc. requires a new machine. Two companies have submitted bids, and you have been assigned the task of choosing one machine. Cash flows analysis indicates the following:


Year     Machine A        Machine B

0           -2,000                -2,000
1            0                         832

2            0                         832
3            0                         832
4            3,877                 832


What is the IRR for each machine?


a. IRR= 16%; IRR=20%

b. IRR= 24%; IRR=20 %

c. IRR = 18%; IRR= 16%

d. IRR= 18%; IRR=24%

e. IRR= 24%; IRR =26%



2.) What is the current equilibrium stock price

a. $5.00

b. $8.75

c. $9.57

d. $12.43

e. $15.00


3.) What will club's stock price be at the end of the first year

a. $5.00

b. $8.76

c. $9.56

d. $12.43

e. $15.00

Explanation / Answer

Machine A

IRR be r

For IRR, NPV = 0


-2000 + 3,877/(1+r)^4 =0

r= 18%


Machine B



-2000 + 832/(1+r) + 832/(1+r)^2 + 832/(1+r)^3 + 832/(1+r)^4 =0

r= 24.00%


d. IRR= 18%; IRR=24%


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