Question

Consider the following three projects: YEAR 0 1 2 3 4 Project A -$ 50.00 $...

Consider the following three projects:

YEAR 0 1 2 3 4
Project A -$ 50.00 $ 15.00 $ 15.00 $ 15.00 $ 15.00
Project B -$ 75.00 $ 30.00 $ 30.00 $ 25.00 $ 25.00
Project C -$ 80.00 $ 25.00 $ 30.00 $ 30.00 $ 30.00


Suppose that the projects are contingent, what is the highest financing rate you can afford to accept all 3 projects?

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Homework Answers

Answer #1

Internal Rate of Return (IRR) is the rate at which Net Present Value is zero

It is basically the rate that we get from project

So Highest financing rate one can afford to accept all projects is IRR of the project

YEAR Project A Project B Project C All Project
0 -50 -75 -80 -205
1 15 30 25 70
2 15 30 30 75
3 15 25 30 70
4 15 25 30 70
IRR 7.71% 18.06% 15.78% 14.67%

Above IRR can be calculated by using Financial Calculator or IRR function in excel.

highest financing rate you can afford to accept all 3 projects = 14.67%

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