An individual decides to invest in one of two projects, A and B, which both require the same initial outlay of $10000. Project A yields $11500 in three years' time whereas Project B yields, $12 100 in four years' time. Calculate the internal rate of return for each project. What advice can you give if the prevailing market rate of interest is 4.8%?

An individual decides to invest in one of two projects, A and B, which both require the same initial outlay of $10000. Project A yields $11500 in three years' time whereas Project B yields, $12 100 in four years' time. Calculate the internal rate of return for each project. What advice can you give if the prevailing market rate of interest is 4.8%?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You have the opportunity to make an investment that costs $1.000,000. If you make this investment now, you will receive $250,000 one year from today, $200,000, $150,000 and $ 400,000 two and three years from today, respectively. The appropriate discount rate for thisinvestment is 11 percent. .a. Should you make the investment?b. What is the net present value (NPV) of this opportunity?c. If the discount rate is 10 percent, should you invest? Compute the NPV to support youranswer.
You are considering a safe investment opportunity that requires a $1,080 investment today, and will pay $710 two years from now and another $610 five years from now. a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of 5% per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain. a. What is the IRR of this investment? The IRR of this investment is _____________%. (Round to two decimal places.)
You are considering a safe investment opportunity that requires a $1,450 investment today, and will pay $950 two years from now and another $710 five years from now. a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of 5% per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain. a. What is the IRR of this investment? The IRR of this investment is %. (Round to two decimal places.)
You are considering a safe investment opportunity that requires a $780 investment today, and will pay $870 two years from now and another $640 five years from now. a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of 5% per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain.
You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1,500 two years from now, and $10,000 ten years from now. a. What is the NPV of the investment opportunity if the interest rate is 8% per year? Should you take the opportunity? b. What is the NPV of the investment opportunity if the interest rate is 4% per year? Should you take the opportunity? a. What is the NPV of the investment opportunity if the interest rate is 8% per year? The NPV of the investment opportunity if the interest rate is 8% per year is $. (Round to the nearest dollar.) Should you take the investment opportunity (Select the best choice below.) A. Reject it because the NPV is less than 0. B. Take it because the NPV is equal to or greater than 0. b. What is the NPV of the investment opportunity if the interest rate is 4% per year? The NPV of the investment opportunity if the interest rate is 4% per year is $ (Round to the nearest dollar.) Should…
Suppose that you have $16,000 to invest and you are trying to decide between investing in project A or project B. If you invest in project A, you will receive a payment of $19,000 at the end of 3 years. If you invest in project B, you will receive a payment of $48,000 at the end of 21 years. The annual interest rate is 5 percent and both projects carry no risk. Instructions: Round your answers to the nearest dollar. Do not round your intermediate calculations. a What is the present value of each project? Enter your answers in the table below. Project A Project B Present Value $ s b. Which project will you choose for your investment? O Project A O Project B
An investor has an opportunity of borrowing sh. 1000,000 to buy a machine which will only last one year and it is written off. The rate of interest is 8% p.a.The machien will generate a revenue of sh. 1,200,000. Compute Marginal effeciency capital (MEC) and advice him on whether he should consider under taking the project or not
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Your firm has a risk-free investment opportunity where it can invest $160,000 today and receive $170,000 in one year. For what level of interest rate is this project attractive? The project will be attractive when the interest rate is any positive value less than or equal to ____________%? (Round to two decimal places.)
Suppose you invest $3,000 today and receive $10,000 in 25 years. a. What is the internal rate of return (IRR) of this opportunity? b. Suppose another investment opportunity also requires $3,000 upfront, but pays an equal amount at the end of each year for the next 25 years. If this investment has the same IRR as the first one, what is the amount you will receive each year? a. What is the internal rate of return (IRR) of this opportunity? The IRR of this opportunity is%. (Round to two decimal places.) b. Suppose another investment opportunity also requires $3,000 upfront, but pays an equal amount at the end of each year for the next 25 years. If this investment has the same IRR as the first one, what is the amount you will receive each year? The periodic payment that gives the same IRR is $ (Round to the nearest cent.)
ou invest $1000at time t=0 and an additional $5000 at time t=1/2. At time t=1/2 you have $1300 in your account and at time t=1 you have $6100 in your account. Find the dollar-weighted rate of return rd and the time-weighted rate of return rt on this investment.
Suppose Niles plans to invest $1,000. He can earn an effective annual rate of 6% on Security A, while Security B has an effective annual rate of 12%. The time taken to double the value of investment under Security B should be exactly half the time taken to double the value of investment under Security A. Group of answer choices True False

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