Do all the problems. Include calculations and/or explanations in your answers wh

Question

Do all the problems.  Include calculations and/or explanations in your answers wherever appropriate.  More credit will be given for correct reasoning than for correct arithmetic.

                   A: -$1,000, $277, $277, $277, $277, $277.

(a)    Calculate its NPV at 6% and its IRR.  

(b)   Sketch its NPV profile.

2.      Beta Company is investigating project B, which has a cost of capital of 16%.

                     B:        -$16,000, $6,000, $6,000, $8,000.

(a)                Calculate the NPV.     Is project B acceptable?

(b)               What does your answer to part (a) say about the IRR of project B.  Why?

3.       Gamma Co. is considering project C.

                        C:        $5,000, $4,000, $7,000, -$8,000, -$10,000

C

Explanation / Answer

1.

NPV = -1000+277*PVIFA(6,5) = -1000+277*4.2124 = $166.83

IRR = 11.94%

2.

NPV = -16000+(6000/1.16)+(6000/1.16^2)+(8000/1.16^3) = -$1243.13

16000= [6000/(1+IRR)]+[6000/(1+IRR)^2]+[8000/(1+IRR)^3]

IRR = 11.426%

project is not not acceptable

3.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.