i need the answer as soon as possible please ... Suppose a 6-year project has tw
ID: 1195809 • Letter: I
Question
i need the answer as soon as possible please ...
Suppose a 6-year project has two different scenarios of outcomes: Normal and Optimistic. In the normal scenario, this project has an initial cost of -20,000, annual benefit is 4000/year and the salvage value is 3000. In the Optimistic scenario, this project has an initial cost of -30000, annual benefit of 8000/year with the same salvage value. Assume an interest rate of 8%, what is the IRR of this project?
Select one: a. 8.58% b. 12.72% c. 16.86% d. 10.32%
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Suppose a 4-year project has an initial cost of -40,000, annual benefit is 8000/year and the salvage value is 5000. Assume an interest rate of 8%, what is the NPV of this project? Select one:
a. -9828 b. -13503 c. -10499 d. -9550
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f all of the assets below have the same risk, which of them has the LOWEST future value? The cash flows specified are for years 1, 2, 3, and 4 respectively, in sequence. Select one:
a. $2000, $0, $2000, $0
b. $0, $2000 $0, $2000
c. $0, $4000, $0, $0
d. $4000, $0, $0, $0 ------------------
A firm's bonds mature in 10 years, have a par value of $1,000, and make an monthly coupon interest payment based on an annual rate of 8%. The market requires an interest rate of 10% on these bonds. What is the price of the bond?
Select one: a. 877.11 b. 873.88 c. 874.23 d. 875.21
Explanation / Answer
1. Calculate the IRR of the project in the normal scenario.
Use an excel spreadsheet, then follow the following steps.
Click on any cell in the spreadsheet.
Use the formula “=Rate(Nper, pmt, pv, fv)”.
Substitute 6 for nper, ?20000 for pv, 4000 for pmt, and 3000 for fv.
Hit the enter key.
The answer you will get is 8.58%.
Now, Calculate the IRR of the project in the optimist scenario.
Use an excel spreadsheet, then follow the following steps.
Click on any cell in the spreadsheet.
Use the formula “=Rate(Nper, pmt, pv, fv)”.
Substitute 6 for nper, ?30000 for pv, 8000 for pmt, and 3000 for fv.
Hit the enter key.
The answer you will get is 12.72%.
Assuming that the probabilities of the two scenarios is equal, the IRR of the project is 12.72 [=(8.58+12.72)/2].
2. The correct option is a, because NPV = -40000 + 8000(P/A, 8%, 4) + 5000(P/F, 8%, 4) = -40000 + 8000(3.312) + 5000 (0.7350)
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