Which of the following statements concerning the project's IRR is correct. A. The IRR is approximately 13.5%. B. The IRR is exactly 13.5%. C. The IRR is greater than 16%. D. The IRR is less than 11%. d) u are given the following information on projects A and B: State of Nature Probability 1 10% 2 20% 3 50% 4 20% Return on Project A -3% 4% 6% 12% Return on Project B -2% 4.5% 7% 14% Explain with reasons which of the two projects the investor should choose to maximise his expected utility of wealth. Question Two a) A company has $10 million available for investment. It is considering investing in three individual investment projects. Project One Project Two Project Three Initial Investment $4 million $2 million $7 million Net present value $9 million $3 million $11 million What would be the opportunity cost of investing in Project One? b) What is the strongest argument in favor of setting a common hurdle rate across a company for all projects? c) You have been asked to determine the internal rate of return (IRR) of a project that has an initial cash outflow, followed by seven years of net cashflows. The project's net present value was +$500,000 when determined at 11% and -$500,00 when determined at 16%.
Which of the following statements concerning the project's IRR is correct. A. The IRR is approximately 13.5%. B. The IRR is exactly 13.5%. C. The IRR is greater than 16%. D. The IRR is less than 11%. d) u are given the following information on projects A and B: State of Nature Probability 1 10% 2 20% 3 50% 4 20% Return on Project A -3% 4% 6% 12% Return on Project B -2% 4.5% 7% 14% Explain with reasons which of the two projects the investor should choose to maximise his expected utility of wealth. Question Two a) A company has $10 million available for investment. It is considering investing in three individual investment projects. Project One Project Two Project Three Initial Investment $4 million $2 million $7 million Net present value $9 million $3 million $11 million What would be the opportunity cost of investing in Project One? b) What is the strongest argument in favor of setting a common hurdle rate across a company for all projects? c) You have been asked to determine the internal rate of return (IRR) of a project that has an initial cash outflow, followed by seven years of net cashflows. The project's net present value was +$500,000 when determined at 11% and -$500,00 when determined at 16%.
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:Which of the following statements concerning the project's IRR is correct.
A. The IRR is approximately 13.5%.
B. The IRR is exactly 13.5%.
C. The IRR is greater than 16%.
D. The IRR is less than 11%.
d) u are given the following information on projects A and B:
State of Nature
Probability
1
10%
2
20%
3
50%
4
20%
Return on Project A
-3%
4%
6%
12%
Return on Project B
-2%
4.5%
7%
14%
Explain with reasons which of the two projects the investor should choose to maximise his
expected utility of wealth.
Transcribed Image Text:Question Two
a) A company has $10 million available for investment. It is considering investing in three
individual investment projects.
Project One
Project Two
Project Three
Initial Investment
$4 million
$2 million
$7 million
Net present value
$9 million
$3 million
$11 million
What would be the opportunity cost of investing in Project One?
b) What is the strongest argument in favor of setting a common hurdle rate across a company
for all projects?
c) You have been asked to determine the internal rate of return (IRR) of a project that has an
initial cash outflow, followed by seven years of net cashflows. The project's net present
value was +$500,000 when determined at 11% and -$500,00 when determined at 16%.
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