PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 5, Problem 8PS
IRR rule* Consider a project with the following cash flows:
- a. How many internal rates of return does this project have?
- b. Which of the following numbers is the project IRR: (i) −50%; (ii) −12%; (iii) +5%; (iv) +50%?
- c. The
opportunity cost of capital is 20%. Is this an attractive project? Briefly explain.
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Students have asked these similar questions
If the cash flows for Project M are C0 = -1,000; C1 = +800; C2 = +700 and C3= -200. Calculate the IRR for the project. For what range of discount rates does the project have a positive NPV?
1] Payback and Internal Rate of Return: A project has perpetual cash flows of C per period, a cost of I, and a required return of r. What is the relationship between the project’s payback and its IRR? What implications does your answer have for long-lived projects with relatively constant cash flows?
2] WHAT ARE THE PROBLEMS WITH IRR APPROACH TO CAPITAL BUDGETING?
3] COMPARE IRR WITH MIRR METHOD.
Consider the cash flows for the investment projects given in Table. Assume that the
MARR = 10%.
(a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected
on the basis of the IRR criterion?
(b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which
Project would you select?.
Net Cash Flow
B
D.
E
-4,850
2,100
2,100
2,500
4,250
3,200
2,850
800
300
4,250
4,250
2,850
2,900
1,050
500
-835
-835
-835
-835
1,500
3.250
1,600
1,200
2,100
2,100
Chapter 5 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 5 - (IRR) Check the IRRs for project F in Section 5-3.Ch. 5 - (IRR) What is the IRR of a project with the...Ch. 5 - (XIRR) What is the IRR of a project with the...Ch. 5 - Payback a. What is the payback period on each of...Ch. 5 - Payback Consider the following projects: a. If the...Ch. 5 - Prob. 3PSCh. 5 - IRR Write down the equation defining a projects...Ch. 5 - Prob. 5PSCh. 5 - IRR Calculate the IRR (or IRRs) for the following...Ch. 5 - IRR rule You have the chance to participate in a...
Ch. 5 - IRR rule Consider a project with the following...Ch. 5 - IRR rule Consider projects Alpha and Beta: The...Ch. 5 - IRR rule Consider the following two mutually...Ch. 5 - IRR rule Mr. Cyrus Clops, the president of Giant...Ch. 5 - Prob. 12PSCh. 5 - Investment criteria Consider the following two...Ch. 5 - Profitability index Look again at projects D and E...Ch. 5 - Capital rationing Suppose you have the following...Ch. 5 - Prob. 17PSCh. 5 - Prob. 18PS
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- Internal rate of return For the project shown in the following table, calculate the internal rate of return (IRR). Then indicate, for the project, the maximum cost of capital that the firm could have and still find the IRR acceptable.arrow_forwardwhich of the following do you need to know to calculate the IRR of a project?. 1. project's estimated cash flows 2. project's level of risk 3. project's required rate of return 4. project's NPV a. 1 and 2 b. 4 only c. 1,2 and 3 d. 1 only e. 2 onlyarrow_forwardConsider the following cash flows: C0= -22, C1= 20, C2= 20, C3=20, C4= -40 a) Calculate both the internal rates of return on this project out of which one is (a shade above) 7% and that the other is (a shade below) 34%. b) is the project attractive if the discount rate is 5%? What is the NPV? c) Is the project attractive is the discount rate is 20%? What is the NPV? d) Is the project attractive is the discount rate is 40%? What is the NPV?arrow_forward
- A project's IRR: A) All of these answers are correct. B is the average rate of return necessary to pay back the project's capital providers. C is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity. D will change with the cost of capital.arrow_forwardConsider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion (b) Assume that projects C and È are mutually exclusive. Using the IRR criterion, which Project would you select? Net Cash Flow A В C D E -4,250 3,200 2,850 -4,250 1,500 3,250 1,600 1,200 -4,250 2,850 -4,850 2,100 2,100 2,100 2,100 2,500 1 -835 2,900 1,050 500 2 -835 3 800 -835 4 300 -835arrow_forwardNet Present Value Suppose a project has conventional cash flows and a positive NPV. What do you know about its payback? Its discounted payback? Its profitability index? Its IRR? Explain.arrow_forward
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