a.
Adequate information:
Year | Cash Flows |
0 | $8,700 |
1 | -$3,900 |
2 | -$2,900 |
3 | -$2,300 |
4 | -$1,800 |
To compute: The
Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate
b.
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
c.
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.
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
e.
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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Chapter 5 Solutions
CORPORATE FINANCE
- Imagine that the SUNY Brockport Student Government Association (SGA) is considering investing in sustainable campus improvements. These improvements include installing solar panels, updating campus lighting to energy-efficient LEDs, and implementing a rainwater collection system for irrigation. The total initial investment required for these projects is $100,000. The projects are expected to generate savings (effectively, the cash inflows in this scenario) of $30,000 in the first year, $40,000 in the second year, $50,000 in the third year, and $60,000 in the fourth year due to reduced energy and maintenance costs. SUNY Brockport’s discount rate is 8%. What is the NPV of the sustainable campus improvements? (rounded) a- $70,213b- $48,729c- $45,865d- $62,040arrow_forwardImagine that the SUNY Brockport Student Government Association (SGA) is considering investing in sustainable campus improvements. These improvements include installing solar panels, updating campus lighting to energy-efficient LEDs, and implementing a rainwater collection system for irrigation. The total initial investment required for these projects is $100,000. The projects are expected to generate savings (effectively, the cash inflows in this scenario) of $30,000 in the first year, $40,000 in the second year, $50,000 in the third year, and $60,000 in the fourth year due to reduced energy and maintenance costs. SUNY Brockport’s discount rate is 8%. What is the NPV of the sustainable campus improvements? (rounded)a- $70,213b- $48,729c- $45,865d- $62,040arrow_forwardAfter 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? 26,196 27,000 24,500 25,938arrow_forward
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- Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
