1.) Genuine Producs Inc. requires a new machine. Two companies have submitted bi
ID: 2704498 • Letter: 1
Question
1.) Genuine Producs Inc. requires a new machine. Two companies have submitted bids, and you have been assigned the task of choosing one machine. Cash flows analysis indicates the following:
Year Machine A Machine B
0 -2,000 -2,000
1 0 832
2 0 832
3 0 832
4 3,877 832
What is the IRR for each machine?
a. IRR= 16%; IRR=20%
b. IRR= 24%; IRR=20 %
c. IRR = 18%; IRR= 16%
d. IRR= 18%; IRR=24%
e. IRR= 24%; IRR =26%
2.) What is the current equilibrium stock price
a. $5.00
b. $8.75
c. $9.57
d. $12.43
e. $15.00
3.) What will club's stock price be at the end of the first year
a. $5.00
b. $8.76
c. $9.56
d. $12.43
e. $15.00
Explanation / Answer
Machine A
IRR be r
For IRR, NPV = 0
-2000 + 3,877/(1+r)^4 =0
r= 18%
Machine B
-2000 + 832/(1+r) + 832/(1+r)^2 + 832/(1+r)^3 + 832/(1+r)^4 =0
r= 24.00%
d. IRR= 18%; IRR=24%
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