Adequate information: Year Cash Flows 0 $8,700 1 -$3,900 2 -$2,900 3 -$2,300 4 -$1,800 To compute: The internal rate of return (IRR) of the offer. Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

Question

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Answer 1

Question

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

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Which is the better option if the interest rate is r=0.07 (r=7%)? Show all work used to arrive at your answer. a. Option I: Receive $510 today at time t=0. b. Option II: Receive $1000 at time t=10. Show work on both options!

You are offered the choice of two payments streams A. $150 paid one year from now, and $150 paid two years from now. B. $140 paid one year from now and $164 paid two years from now. a. Which payment stream would you prefer if the interest rate is 9 percent? (Prefer Stream B/Prefer Stream A)? b. Which payment stream would you prefer if the interest rate is 12 percent? (Prefer Stream A/Prefer Stream B)?

Which is the better option if the interest rate is r=0.07 (r=7%)? Show all work used to arrive at your answer. a. Option I: Receive $510 today at time t=0. b. Option II: Receive $1000 at time t=10.

Answer 2

Question

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

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Answer 3

Question

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

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Answer 4

Question

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

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Answer 5

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

Answer 6

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

Answer 7

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

Answer 8

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

Answer 9

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

Answer 10

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

Answer 11

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

Answer 12

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 13

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 14

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

Answer 15

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

Answer 16

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Answer 17

Expert Solution & Answer

Answer 18

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Answer 19

Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - Prob. 5CQ Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQ Ch. 5 - Prob. 8CQ Ch. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...

Solution Summary: The author calculates the internal rate of return (IRR) of the offer by using the Excel IRR function.

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Chapter 5 Solutions

Year	Cash Flows
0	$8,700
1	-$3,900
2	-$2,900
3	-$2,300
4	-$1,800