Justin Lieberman must earn a minimum rate of return of 17.17% as compensation for the risk of the following investment: a. Use present value techniques to estimate the IRR on this investment. b. On the basis of your finding in part a, should Justin make the proposed investment? a. The yield on this investment is%. (Round to two decimal places.) b. On the basis of your finding in part a, should Justin make the proposed investment? (Select the best answer below.) A. This investment should not be recommended because 17.17% is an arbitrary choice of return for an investment of this risk level. B. This investment should be recommended because 17.17% does not compensate for an investment that lasts longer than one year. C. This investment should not be recommended because it yields less than the minimum required return. O D. This investment should be recommended because it yields more than the minimum required return. Data table Initial Investment End of Year 1 23 $10,915 Income $3,367 $4,074 $3,565 CO - X
Justin Lieberman must earn a minimum rate of return of 17.17% as compensation for the risk of the following investment: a. Use present value techniques to estimate the IRR on this investment. b. On the basis of your finding in part a, should Justin make the proposed investment? a. The yield on this investment is%. (Round to two decimal places.) b. On the basis of your finding in part a, should Justin make the proposed investment? (Select the best answer below.) A. This investment should not be recommended because 17.17% is an arbitrary choice of return for an investment of this risk level. B. This investment should be recommended because 17.17% does not compensate for an investment that lasts longer than one year. C. This investment should not be recommended because it yields less than the minimum required return. O D. This investment should be recommended because it yields more than the minimum required return. Data table Initial Investment End of Year 1 23 $10,915 Income $3,367 $4,074 $3,565 CO - X
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
Related questions
Question
Transcribed Image Text:Question list
Question 1
Question 2
Question 3
O Question 4
O Question 5
O Question 6
O Question 7
K
Justin Lieberman must earn a minimum rate of return of 17.17% as compensation for the risk of the following investment:
a. Use present value techniques to estimate the IRR on this investment.
b. On the basis of your finding in part a, should Justin make the proposed investment?
a. The yield on this investment is %. (Round to two decimal places.)
b. On the basis of your finding in part a, should Justin make the proposed investment? (Select the best answer below.)
A. This investment should not be recommended because 17.17% is an arbitrary choice of return for an investment of this risk level.
B. This investment should be recommended because 17.17% does not compensate for an investment that lasts longer than one year.
C. This investment should not be recommended because it yields less than the minimum required return.
D. This investment should be recommended because it yields more than the minimum required return.
Data table
Initial Investment
End of Year
1
2345
$10,915
Income
$3,367
$4,074
$3,565
$2,711
$1,200
-
X
Expert Solution
Step 1: Analysis
Internal rate of return is a discount rate that equates the NPV of an investment opportunity to zero. It the rate of return that the firm will earn if invests in the project and receives given cash flows.
Decision criteria for acceptance or rejection of project on the basis of IRR
(a) If the IRR is greater than minimum rate, accept the project.
(b) I the IRR is less than minimum rate, reject the project.
Step by step
Solved in 4 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education