Adequate information: Year Cash Flows 0 $8,700 1 -$3,900 2 -$2,900 3 -$2,300 4 -$1,800 To compute: The internal rate of return (IRR) of the offer. Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

Question

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Answer 1

Question

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

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Consider the following gasoline sales time series. If needed, round your answers to two decimal digits. Week Sales (1,000s of gallons) 1 17 2 21 3 19 4 23 5 18 6 16 7 20 8 18 9 22 10 20 11 15 12 22 (a) Show the exponential smoothing forecasts using α = 0.1, and α = 0.2. ExponentialSmoothing Week α = 0.1 α = 0.2 13 (b) Applying the MSE measure of forecast accuracy, would you prefer a smoothing constant of α = 0.1 or α = 0.2 for the gasoline sales time series? An smoothing constant provides a more accurate forecast, with an overall MSE of . (c) Are the results the same if you apply MAE as the measure of accuracy? An smoothing constant provides a more accurate forecast, with an overall MAE of . (d) What are the results if MAPE is used? An smoothing constant provides a more accurate forecast, with an overall MAPE of .

After many sunset viewings at SUNY Brockport, Amanda dreams of owning a waterfront home on Lake Ontario. She finds her perfect house listed at $425,000. Leveraging the negotiation skills she developed at school, she persuades the seller to drop the price to $405,000. What would be her annual payment if she opts for a 30-year mortgage from Five Star Bank with an interest rate of 14.95% and no down payment? a- $25,938 b- $26,196 c- $24,500 d- $27,000

Answer 2

Question

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

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Answer 3

Question

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

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Answer 4

Question

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

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Answer 5

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

Answer 6

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

Answer 7

Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

Answer 8

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

Answer 9

b.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

Answer 10

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

Answer 11

c.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

Answer 12

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 13

d.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To compute:

The net present value (NPV) of the offer if the appropriate discount rate is 10%.

The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 14

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

Answer 15

e.

Summary Introduction

Adequate information:

Year Cash Flows
0 $8,700
1 -$3,900
2 -$2,900
3 -$2,300
4 -$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

Answer 16

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Answer 17

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Answer 18

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Answer 19

Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - Prob. 5CQ Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQ Ch. 5 - Prob. 8CQ Ch. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...

Solution Summary: The author calculates the internal rate of return (IRR) of the offer by using the Excel IRR function.

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Chapter 5 Solutions

Year	Cash Flows
0	$8,700
1	-$3,900
2	-$2,900
3	-$2,300
4	-$1,800