Question

Consider the following two projects:

Project |
Year 0 CF |
Year 1 CF |
Year 2 CF |
Year 3 CF |
Year 4 CF |
Cost of capital |

A |
-100 |
40 |
50 |
60 |
10 |
15% |

B |
-73 |
30 |
30 |
30 |
30 |
15% |

The IRR of project A =? maybe round this one to the closest?

A) 7.7%

B) 21.6%

C) 23.3%

D) 42.9%

The IRR of project B =?

A) 21.6%

B) 23.3%

C) 42.9%

D) 7.7%

Which of the following statements is correct?

A) Accept project A since its IRR > 15%.

B) Reject project B since its NPV > 0.

C) Accept project A since its NPV < 0.

D) Accept project B since its IRR < 15%.

The maximum number of IRRs that can be found for project B is:

A) 3

B) 1

C) 2

D) 0

The crossover rate is:

A) 27.65%

B) 15.31%

C) 20.58%

D) 33.26%

Answer #1

Using Excel formula to calculate IRR and Crossover rate

A | B | C | |||

Year | Project A | Project B | Cash Flow difference | ||

1 | 0 | -100 | -73 | -27 | |

2 | 1 | 40 | 30 | 10 | |

3 | 2 | 50 | 30 | 20 | |

4 | 3 | 60 | 30 | 30 | |

5 | 4 | 10 | 30 | -20 | |

IRR | 24.28% | 23.34% | 27.65% | Crossover Rate | |

Using excel formula | IRR(A1:A5) | IRR(B1:B5) | IRR(C1:C5) |

1. First IRR of A is 24.28%

2. IRR of B is 23.34%

3.Option A accept Project Because IRR is greater than 15%

4. Number of IRRs of B is 1

5. Option a crossover rate is 27.65%

Please Discuss in case of Doubt

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Consider the following two projects:
Project
Year 0
Year 1
Year 2
Year 3
Year 4
Discount
Rate (%)
Cash Flow
Cash Flow
Cash Flow
Cash Flow
Cash Flow
A
-90
40
50
60
---
3.0
B
-90
30
30
30
30
3.0
(a) The internal rate of return (IRR) for project
A is %. (round to two
decimals)
(b) The internal rate of return (IRR) for project
B is %. (round to two
decimals)
(c) The NPV for project...

Year
0
1
2
3
4
5
6
Project A CF
-350
-250
175
225
375
450
125
Project B CF
-1000
125
250
300
550
500
200
WACC = 12%
a. Calculate the NPV of Project A.?
b. Calculate the IRR of Project A.?
c. Calculate the MIRR of Project A.?
d. Calculate the Payback Period for Project B.?
e. Calculate the Discounted Payback Period for Project B.?
f. Calculate the EAA for Project B.?
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Project
Year 0
Cash Flow
Year 1
Cash Flow
Year 2
Cash Flow
Year 3
Cash Flow
Year 4
Cash Flow
Discount Rate
A
-100
40
50
60
N/A
.15
B
-73
30
30
30
30
.15
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If interest rates are now down to 13%, what are the new
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You are analyzing the following two mutually exclusive projects
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Year Project A Cash Flow Project B
Cash Flow
0 -$84,500 -$76,900
1 $29,000 $25,000
2 $40,000 $35,000
3 $27,000 $26,000
IRR A: ___________
IRR B: ___________
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What is the profitability index of the proposed project if the
discount rate is 6%?
Group of answer choices
a. 0.03
b.1.03
c.1.63
d.2.03

1. Consider the following information for projects K and
W to answer the following 2 (A & B) questions:
Project K: NPV = $1,500. IRR = 20%
Project W: NPV = $2,500. IRR = 15%
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Project S costs $16,000 and is expected to produce cash flows of
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B) 5.61 years
C) 4.86 years
D) 5.85 years
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Year 2 Cash Flow(X) 8,700 Cash Flow(Y) 7,600
Year 3 Cash Flow (X) 8,600 Cash Flow (Y) 8,500
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Project Y ___%
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0
1
2
3
Project A
-$20
$5
$9
$12
Project B
-$13
$8
$7
$3
What are the projects' NPVs assuming the WACC is 5%? Enter your
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( ).
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6 %
17%
8.7 %
9.5 %
10.5 %
11.8 %
12 %
15.0 %
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