Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 9, Problem 24QP
Summary Introduction
To calculate: The number of IRR’s to decide the rate at which the company must accept the project.
Introduction:
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This problem is useful for testing the ability of financial calculators or excel. Consider the following cash flows. How many different IRRs are there (Hint: search between 20 percent and 70 percent)? When should we take this project?( u can use Excel)
Year
Cash Flow
0
-$3,024
1
17,172
2
-36,420
3
34,200
4
-12,000
NPV profile of a project. Given the following cash flow of Project L-2, draw the NPV profile. Hint: Be sure to use a
discount rate of zero for one intercept (y-axis) and solve for the IRR for the other intercept (x-axis).
(Click on the following icon in order to copy its contents into a spreadsheet.)
Year 0 = - $300,000
Year 1= $42,000
Year 2 = $77,000
Year 3 = $111,000
Year 4 = $140,000
What is the NPV of Project L-2 where zero is the discount rate?
$ 70000.00 (Round to the nearest dollar.)
What is the IRR of Project L-2?
% (Round to two decimal places.)
NPV profile of a project. Given the following cash flow of Project L-2, draw the NPV profile. Hint. Be sure to use a discount rate of zero for one intercept (y-axis) and solve for the IRR for the other intercept ( x-axis). (Click on the following icon ◻ in order to copy its contents into a spreadsheet.) Year 0=-$300,000 Year 1=$50,000 Year 2=$79,000 Year 3=$118,000 Year 4=$130,000 What is the NPV of Project L-2 where zero is the discount rate? $ (Round to the nearest dollar.) What is the IRR of Project L-2? % (Round to two decimal places.) Which of the graphs below best fits the NPV profile of the project? Click on the magnifying glass icon to see an enlarged version of each graph. (Select the best response.) B. D.
Chapter 9 Solutions
Fundamentals of Corporate Finance
Ch. 9.1 - Prob. 9.1ACQCh. 9.1 - Prob. 9.1BCQCh. 9.2 - Prob. 9.2ACQCh. 9.2 - Why do we say that the payback period is, in a...Ch. 9.3 - Prob. 9.3ACQCh. 9.3 - What advantage(s) does the discounted payback have...Ch. 9.4 - What is an average accounting rate of return...Ch. 9.4 - What are the weaknesses of the AAR rule?Ch. 9.5 - Prob. 9.5ACQCh. 9.5 - Is it generally true that an advantage of the IRR...
Ch. 9.6 - What does the profitability index measure?Ch. 9.6 - How would you state the profitability index rule?Ch. 9.7 - Prob. 9.7ACQCh. 9.7 - If NPV is conceptually the best procedure for...Ch. 9 - Prob. 9.1CTFCh. 9 - Prob. 9.2CTFCh. 9 - Prob. 9.3CTFCh. 9 - Prob. 9.4CTFCh. 9 - What is a benefitcost ratio?Ch. 9 - Prob. 9.7CTFCh. 9 - Prob. 1CRCTCh. 9 - Net Present Value [LO1] Suppose a project has...Ch. 9 - Prob. 3CRCTCh. 9 - Prob. 4CRCTCh. 9 - Prob. 5CRCTCh. 9 - Net Present Value [LO1] Concerning NPV: a....Ch. 9 - Prob. 7CRCTCh. 9 - Profitability Index [LO7] Concerning the...Ch. 9 - Payback and Internal Rate of Return [LO2, 5] A...Ch. 9 - Prob. 10CRCTCh. 9 - Capital Budgeting Problems [LO1] What difficulties...Ch. 9 - Prob. 12CRCTCh. 9 - Modified Internal Rate of Return [LO6] One of the...Ch. 9 - Net Present Value [LO1] It is sometimes stated...Ch. 9 - Internal Rate of Return [LO5] It is sometimes...Ch. 9 - Calculating Payback [LO2] What is the payback...Ch. 9 - Calculating Payback [LO2] An investment project...Ch. 9 - Calculating Payback [LO2] Siva, Inc., imposes a...Ch. 9 - Calculating Discounted Payback [LO3] An investment...Ch. 9 - Calculating Discounted Payback [LO3] An investment...Ch. 9 - Calculating AAR [LO4] Youre trying to determine...Ch. 9 - Calculating IRR [LO5] A firm evaluates all of its...Ch. 9 - Calculating NPV [LO1] For the cash flows in the...Ch. 9 - Calculating NPV and IRR [LO1, 5] A project that...Ch. 9 - Calculating IRR [LO5] What is the IRR of the...Ch. 9 - Prob. 11QPCh. 9 - NPV versus IRR [LO1, 5] Garage, Inc., has...Ch. 9 - Prob. 13QPCh. 9 - Problems with IRR [LO5] Light Sweet Petroleum,...Ch. 9 - Prob. 15QPCh. 9 - Problems with Profitability Index [LO1, 7] The...Ch. 9 - Comparing Investment Criteria [LO1, 2, 3, 5, 7]...Ch. 9 - NPV and Discount Rates [LO1] An investment has an...Ch. 9 - MIRR [L06] RAK Corp. is evaluating a project with...Ch. 9 - Prob. 20QPCh. 9 - Prob. 21QPCh. 9 - Cash Flow Intuition [LO1, 2] A project has an...Ch. 9 - Payback and NPV [LO1, 2] An investment under...Ch. 9 - Prob. 24QPCh. 9 - NPV Valuation [LO1] The Yurdone Corporation wants...Ch. 9 - Problems with IRR [LO5] A project has the...Ch. 9 - Problems with IRR [LO5] McKeekin Corp. has a...Ch. 9 - Prob. 28QPCh. 9 - Prob. 1MCh. 9 - Prob. 2MCh. 9 - Bullock Gold Mining Seth Bullock, the owner of...
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- Problem #2: Consider an investment where the cash flows are: - $920.33 at time 1 = 0 (negative since this is your initial investment) S407 at time = 1 in years $222 at time = 2 in years $426 at time = 3 in years (a) Use Excel's "Solver" to find the internal rate of return (IRR) of this investment. Take a screen shot showing Solver open with your entries for the function clearly visible. Paste the screen shot into an application (like Paint), and save it as a (.png) file. Upload your screenshot below. (b) What is the value of IRR found by Solver?arrow_forwardData Computer Systems is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected. Year 0 1 2 3 Cash flows -$1,100 $450 $480 $500arrow_forwardUneven Cash Flow Stream a. Find the present values of the following cash flow streams. The appropriate interest rate is 9%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF, = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Ch04 Tool Kit.xlsx.) Do not round intermediate calculations. Round your answers to the nearest cent. Year 1 2 3 4 5 Stream A: $ Stream A $ Cash Stream A $100 400 400 400 200 Stream B: $ b. What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest dollar. Stream B $ Cash Stream B $200 400 400 400 100 1 ((1 K A+arrow_forward
- Uneven Cash Flow Stream Find the present values of the following cash flow streams. The appropriate interest rate is 11%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF0 = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Ch04 Tool Kit.xlsx.) Do not round intermediate calculations. Round your answers to the nearest cent. Year Cash Stream A Cash Stream B 1 $100 $300 2 400 400 3 400 400 4 400 400 5 300 100 Stream A: $ Stream B: $ What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest dollar. Stream…arrow_forwardWhich alternative is the most economically efficient among the 3 alternatives with the cash flow diagrams given below? ww mwwm Using the rate of return, find the 10% MARR value? (Shorten your calculations don't do it using path method) Year A B -1027 -2027 -5027 1. 227 727 1527 2 327 727 1427 3 427 727 1327 4 527 727 1227 1127 1027 7 927 827arrow_forward1 2 The following cash flow pattern has two IRRs. Use Excel to draw a graph of the NPV of these cash flows as a function of the discount rate. Then use the IRR function to identify the two IRRS. Would you invest in this project if the opportunity cost were 30%? 3 Discount rate 10.00% -34.96 Data table 4 NPV S Year Cash flow 6 7 0 -300 8 1 300 9 2 200 10 3 150 11 4 122 12 5 133 13 6 -800 14 15 IRR 1 16 IRR2 17 18 19 + ? ?arrow_forward
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