# Question

Consider two streams of cash flows, A and B. Stream A’s first cash flow is $ 8,900 and is received three years from today. Future cash flows in Stream A grow by 4 percent in perpetuity. Stream B’s first cash flow is – $ 10,000, is received two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 12 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?

c. What is the correct IRR rule for Project C?

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?

## Answer to relevant Questions

Darin Clay, the CFO of MakeMoney.com, has to decide between the following two projects:The expected rate of return for either of the two projects is 12 percent. What is the range of initial investment (Io) for which Project ...Raphael Restaurant is considering the purchase of a $9,000 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,500 ...Consider the following cash flows on two mutually exclusive projects:The cash flows of project A are expressed in real terms, whereas those of project B are expressed in nominal terms. The appropriate nominal discount rate ...Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $975,000, and its economic life is five years. The machine will be fully depreciated by the ...Sony International has an investment opportunity to produce a new HDTV. The required investment on January 1 of this year is $165 million. The firm will depreciate the investment to zero using the straight-line method over ...Post your question

0