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
Related questions
Question
Consider the following proposed cash flows:
| n | Cash Flow 1 | Cash Flow 2 | Cash Flow 3 | Cash Flow 4 | Cash Flow 5 |
|---|---|---|---|---|---|
| 0 | -$15,000 | $5,000 | $-10,000 | -$20,000 | -$25,000 |
| 1 | $7,000 | $0 | $2,000 | $25,000 | -$5,000 |
| 2 | $7,000 | -$3,000 | -$5,000 | - | $0 |
| 3 | $7,000 | -$4,000 | $20,000 | - | $50,000 |
Cash Flows
- Identify whether each cashflow is simple or nonsimple and whether each is a borrowing cash flow or investment cash flow
- Find the
IRR of each investment (simple and non-simple). - The company is only interested in simple investment cash flows (not borrowing cash flows and not non-simple investments). If all of the simple investment alternatives are mutually exclusive and the MARR is 15%, which alternative should be chosen? You must show your work and rational for selecting the chosen project
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