Consider a project with the following expected cash flows
You may use Excel spreadsheet in order to perform the necessary computations for this questions. The computation of the IRR is performed using the function: =IRR(range, guess) where range refers to the range where you have inserted the data on the spreadsheet and guess refers to an initial guess as to what might the IRR be [you may guess any number].1. Consider a project with the following expected cash flows:Year Cash flow0 – $549,0001 $91,0002 $182,0003 $374,000a. If the discount rate is 0%, what is the project’s net present value?b. If the discount rate is 5%, what is the project’s net present value?c. What is this project’s internal rate of return?2. Consider a project with the expected cash flows:Year Cash flow0 – $51,0001 $51,0002 $87,0003 – $87,000a. What is this project’s internal rate of return (IRR)?b. If the discount rate is 4%, what is this project’s net present value?3. A project requiring a $1.26 million investment has a profitability index of 0.96. What is its net present value?4. Suppose that I am trying to borrow money from you to finance my business. And suppose that I promise to repay you in two installments, one payment in two years of $15,000 and one payment in four years for $10,000. If your opportunity cost of funds is 10%, how much are you willing to lend me?5. What is the effective annual rate of interest for a loan that has an 15% annual percentage rate, compounded monthly?
