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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Transcribed Image Text:Exercise 10-10A (Algo) Using the internal rate of return to compare investment opportunities LO 10-3
Velma and Keota (V&K) is a partnership that owns a small company. It is considering two alternative investment opportunitles. The first
Investment opportunity will have a five-year useful life, will cost $9,869.02, and will generate expected cash inflows of $3,300 per year.
The second investment is expected to have a useful life of three years, will cost $8,703.98, and will generate expected cash inflows of
$3.500 per year. Assume that V&K has the funds available to accept only one of the opportunities. (PV.of $1 and PVA of $1) (Use
appropriate factor(s) from the tables provided.)
Required
o. Calculate the internal rate of return of each investment opportunity. (Do not round intermediate calculations.)
b. Based on the internal rates of return, which opportunity should V&K select?
Internal Rate of Return
a First investment
Second investmont
bV&K should select the
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