Consider four investments with the sequences of cash flows given in the table be

Question

Consider four investments with the sequences of cash flows given in the table below. 1^Click the icon to view the net cash flows for the projects. (a) Identify all simple investments. Select all that apply. A. Project A B. Project B C. Project C D. Project D (b) Identify all nonsimple investments. Select all that apply A. Project D B. Project C C. Project B D. Project A (c) Compute i* for each investment. The rate of return of Project A is %. (Round to one decimal place.) The rate of return of Project B is %. (Round to one decimal place.) The rate of return of Project C is %. (Round to one decimal place.) The rate of return of Project D is %. (Round to one decimal place.)

Explanation / Answer

Answer to Part A) Simple Investment

Simple Investment :

Net cash flow changes signs only once over study period. Either   + to -   or    - to+

Therefore, Project A & D are simple investment.

Answer to Part B) Non Simple Investment

Non-simple Investment :

Net cash flow changes sign more than once over study period.

Therefore, Project B & C are non simple investment.

Answer to Part C)

Answer c.

Project A :

Let IRR be i%.

-44,000 + 25,000/(1+i) + 25,000/(1+i)^2 + 15,000/(1+i)^3 = 0

I = 24.5%

Project B :

Let IRR be i%.

-38,000 + 32,000/(1+i) + 37,000/(1+i)^2 - 13,000/(1+i)^3 = 0

I = 37.0%

Project C :

Let IRR be i%.

50,000 - 24,000/(1+i) - 24,000/(1+i)^2 - 24,000/(1+i)^3 = 0

I = 20.7%

Project D :

Let IRR be i%.

-46,300 + 2,600/(1+i) + 5,286/(1+i)^2 + 78,345/(1+i)^3 = 0

I = 24.3%

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