UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
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Textbook Question
Chapter 5, Problem 26QP
Calculating
- a. What is the
present value of each stream? - b. Suppose that the two streams are combined into one project, called C. What is the IRR of Project C?
- c. What is the correct IRR rule for Project C?
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Consider two streams of cash flows, A and B. Stream A's first cash flow is $10,000 and is
received three years from today. Future cash flows in Stream A grow by 3 percent in
perpetulty. Stream B's first cash flow is -$8,900, is received two years from today, and
will continue in perpetuity. Assume that the appropriate discount rate is 11 percent.
a. What is the present value of each stream? (A negative amount should be indicated
by a minus sign. Do not round Intermediate calculations and round your answers to
2 decimal places, e.g., 32.16.)
Stream A
Stream B
b. Suppose that the two streams are combined into one project, called C. What is the IRR
of Project C? (Do not round Intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
IRR
%
c. What is the correct IRR rule for Project C?
Accept the project if the discount rate is equal the IRR.
O Accept the project if the discount rate is above the IRR.
Accept the project if the discount rate is…
Consider two streams of cash flows, A and B. Stream A’s first cash flow is $9,800 and is received three years from today. Future cash flows in Stream A grow by 3 percent in perpetuity. Stream B’s first cash flow is −$9,100, is received two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 11 percent.
a.
What is the present value of each stream?
b.
Suppose that the two streams are combined into one project, called C. What is the IRR of Project C?
Consider two streams of cash flows, A and B. Stream A's first cash flow is $10,800 and is received three years from today. Future cash
flows in stream A grow by 3 percent in perpetuity. Stream B's first cash flow is -$9,800, occurs two years from today, and will continue
in perpetuity. Assume that the appropriate discount rate is 11 percent.
a. What is the present value of each stream? (Negative amounts should be indicated by a minus sign. Do not round intermediate
calculations. Round the answers to 2 decimal places. Omit $ sign in your response.)
Present value
Stream A
Stream B
b. Suppose that the two streams are combined into one project, called C. What is the IRR of project C? (Do not round intermediate
calculations. Round the answer to 2 decimal places.)
IRR
7%
c. What is the correct IRR rule for Project C?
Accept the project if the discount rate is above the IRR.
Accept the project if the discount rate is below the IRR.
Accept the project if the discount rate is equal the IRR.
Chapter 5 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
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 - International Investment Projects In March 2014,...Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Calculating Payback Period and NPV Maxwell...Ch. 5 - Calculating Payback An investment project provides...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Prob. 5QPCh. 5 - Calculating IRR Compute the internal rate of...Ch. 5 - Calculating Profitability Index Bill plans to open...Ch. 5 - Calculating Profitability Index Suppose the...Ch. 5 - Cash Flow Intuition A project has an initial cost...Ch. 5 - Prob. 10QPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Problems with Profitability Index The Coris...Ch. 5 - Prob. 13QPCh. 5 - Comparing Investment Criteria Wii Brothers, a game...Ch. 5 - Profitability Index versus NPV Hanmi Group, a...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Comparing Investment Criteria The treasurer of...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QPCh. 5 - NPV and Multiple IRRs You are evaluating a project...Ch. 5 - Payback and NPV An investment under consideration...Ch. 5 - Multiple IRRs This problem is useful for testing...Ch. 5 - NPV Valuation The Yurdone Corporation wants to set...Ch. 5 - Calculating IRR The Utah Mining Corporation is set...Ch. 5 - Prob. 25QPCh. 5 - Calculating IRR Consider two streams of cash...Ch. 5 - Calculating Incremental Cash Flows Darin Clay, the...Ch. 5 - Prob. 28QPCh. 5 - Prob. 1MCCh. 5 - Seth Bullock, the owner of Bullock Gold Mining, is...
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