1) calculate the investments net present value at each of the following discount

Question

1) calculate the investments net present value at each of the following discount rates: 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35% 2) what does the answer to # 1 tell you about the project IRR?choose one A) there is No IRR for such cash flows B) there are infinite IRR for this project C) there are multiple IRR for this project D) there is only one IRR for this project 3) should Froogle invest in this project if it's cost of capital is 5%? 4) should Froogle invest in this project if it's cost is 15%? 5) in general when faced with a project like this how should a firm decide whether to invest in the project or reject it?choose A) it is best to use NPV method B) it is best to use the IRR method C) it is best to use the payback period method D) none of the methods is suitable

Explanation / Answer

The NPV is calculated as per excel with formula = NPV(rate, amount1,....amount 5)

The NPV are as follows:

2. Answer: There are Multiple IRRs for this project

Expaination: SInce there is no convesntional cash flows, the IRR can be multiple and difficult to determine

3. The NPV is very low when compared to the kind of investment

Hence the project should not invest at both 5% and 15%

5. Best method is to use the NPV.

Year Cash Flow 0 210000 1 -966000 2 1661100 3 -1264460 4 360000

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