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The following table shows the forecast cash flows for two projects: C0 C1 C2 C3 C4 C5 A -$1,050 $25 $25 $25 $ 25 $1,240 B-1,050 65 65 1,075 Now suppose that the term structure is upward sloping and investors demand a higher return on the more distant flows as in the following table: t 1 2 3 4 5 rt 4.0 % 4.5 % 5.0% 5.5 % 6.0% a -1. Calculate the IRR on the two projects. a-2. Calculate the NPV on the two projects. a-3. Do the two measures give the same ranking for the two projects?

The following table shows the forecast cash flows for two projects: C0 C1 C2 C3 C4 C5 A -$1,050 $25 $25 $25 $ 25 $1,240 B-1,050 65 65 1,075 Now suppose that the term structure is upward sloping and investors demand a higher return on the more distant flows as in the following table: t 1 2 3 4 5 rt 4.0 % 4.5 % 5.0% 5.5 % 6.0% a -1. Calculate the IRR on the two projects. a-2. Calculate the NPV on the two projects. a-3. Do the two measures give the same ranking for the two projects?

Essentials Of Investments
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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The following table shows the forecast cash flows for two projects: C0 C1 C2 C3 C4 C5 A -$1,050 $25 $25 $25 $ 25 $1,240 B-1,050 65 65 1,075 Now suppose that the term structure is upward sloping and investors demand a higher return on the more distant flows as in the following table: t 1 2 3 4 5 rt 4.0 % 4.5 % 5.0% 5.5 % 6.0% a -1. Calculate the IRR on the two projects. a-2. Calculate the NPV on the two projects. a-3. Do the two measures give the same ranking for the two projects?
Transcribed Image Text:The following table shows the forecast cash flows for two projects: C0 C1 C2 C3 C4 C5 A -$1,050 $25 $25 $25 $ 25 $1,240 B-1,050 65 65 1,075 Now suppose that the term structure is upward sloping and investors demand a higher return on the more distant flows as in the following table: t 1 2 3 4 5 rt 4.0 % 4.5 % 5.0% 5.5 % 6.0% a -1. Calculate the IRR on the two projects. a-2. Calculate the NPV on the two projects. a-3. Do the two measures give the same ranking for the two projects?
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