NPV and Other Investment Criteria For Problems 1-4, use a 5% discount rate and the following cash flows for project A A: (-$2000, $500, $600, $700, $800) 1. Calculate the payback period for project A. 2. Calculate the internal rate of return for project A 3. If A is mutually exclusive and the required rate of return is 5%, which should be accept

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
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CH. 9 WORKSHEET
NPV and Other Investment Criteria
For Problems 1-4, use a 5% discount rate and the following cash flows for project A
A: (-$2000, $500, $600, $700, $800)
1. Calculate the payback period for project A.
2. Calculate the internal rate of return for project A
3. If A is mutually exclusive and the required rate of return is 5%, which should be accepted?
4. If the discount rate is 12%, and A is mutually exclusive, which project should be accepted?
5. You can borrow $8,000, to be repaid in installments of $2,200 at the end of each of the next 5
years. Use the IRR to determine whether this loan is preferable to borrowing at the rate of 11.5%.
6. A firm is considering the following mutually exclusive investment projects. Project A requires an
initial outlay of $500 and will return $120 per year for the next seven years. The required rate of
return is 10%. Use the net present value criterion to determine which investment is preferable.
Transcribed Image Text:CH. 9 WORKSHEET NPV and Other Investment Criteria For Problems 1-4, use a 5% discount rate and the following cash flows for project A A: (-$2000, $500, $600, $700, $800) 1. Calculate the payback period for project A. 2. Calculate the internal rate of return for project A 3. If A is mutually exclusive and the required rate of return is 5%, which should be accepted? 4. If the discount rate is 12%, and A is mutually exclusive, which project should be accepted? 5. You can borrow $8,000, to be repaid in installments of $2,200 at the end of each of the next 5 years. Use the IRR to determine whether this loan is preferable to borrowing at the rate of 11.5%. 6. A firm is considering the following mutually exclusive investment projects. Project A requires an initial outlay of $500 and will return $120 per year for the next seven years. The required rate of return is 10%. Use the net present value criterion to determine which investment is preferable.
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