This graph shows the net present value of an investment with annual cash flows of -$1,000,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
This graph shows the net present value of an investment with annual cash flows of -$1,000, $100, $300, $400, and $675 as a function of different costs of capital (interest %). Note that this cash flow returns increasing amounts after the initial investment. Drag left or right on the graph to move the cursors to see the net present value (NPV) for different costs of capital. The point where the curve crosses the X- axis determines the internal rate of return (IRR). (Note: due to limited pixel resolution, it is sometimes difficult to get to that precise point.) -$1,000+ + + + $100.40 NPV =CFo+N CF Z=1 (1+r) = $100 (1+0.1000) $300 $400 (1+0.1000) (1+0.1000) $675 (1+0.1000)4 NPV ($) 500 400 300 200 100.40100 0 -100 5 I 10 10 15 20 Cost of Capital (%) 1. What is the approximate IRR for the cash flow curve depicted? a. 10% b. 13.5% C. 15% d. 17.5% -Select- 2. When the cost of capital is greater than a project's IRR, the NPV for the project is a. negative b. equals the project's IRR c. positive d. cannot be determined -Select- 3. If the cost of capital decreases, the NPV for the project a. increases b. stays the same c. decreases d. cannot be determined -Select- 4. In the unrealistic situion in which the cost of capital were zero, the NPV of the project a. is the sum of the cash flows b. is the upper limit for the NPV of the project c. both of the above statements are correct d. neither of the first two statements is correct -Select- This graph shows the net present value of an investment with annual cash flows of -$1,000, $100, $300, $400, and $675 as a function of different costs of capital (interest %). Note that this cash flow returns increasing amounts after the initial investment. Drag left or right on the graph to move the cursors to see the net present value (NPV) for different costs of capital. The point where the curve crosses the X- axis determines the internal rate of return (IRR). (Note: due to limited pixel resolution, it is sometimes difficult to get to that precise point.) -$1,000+ + + + $100.40 NPV =CFo+N CF Z=1 (1+r) = $100 (1+0.1000) $300 $400 (1+0.1000) (1+0.1000) $675 (1+0.1000)4 NPV ($) 500 400 300 200 100.40100 0 -100 5 I 10 10 15 20 Cost of Capital (%) 1. What is the approximate IRR for the cash flow curve depicted? a. 10% b. 13.5% C. 15% d. 17.5% -Select- 2. When the cost of capital is greater than a project's IRR, the NPV for the project is a. negative b. equals the project's IRR c. positive d. cannot be determined -Select- 3. If the cost of capital decreases, the NPV for the project a. increases b. stays the same c. decreases d. cannot be determined -Select- 4. In the unrealistic situion in which the cost of capital were zero, the NPV of the project a. is the sum of the cash flows b. is the upper limit for the NPV of the project c. both of the above statements are correct d. neither of the first two statements is correct -Select-
Expert Answer:
Answer rating: 100% (QA)
1What is the approximate IRR for the cash flow curve depicted Answer b 135 This can be estimated by looking at the point where the NPV curve crosses t... View the full answer
Related Book For
Managerial Accounting for Managers
ISBN: 978-1259578540
4th edition
Authors: Eric Noreen, Peter Brewer, Ray Garrison
Posted Date:
Students also viewed these finance questions
-
Using the given information and the beginning inventories from Problem 4, calculate the minimum replenishment time for the 80 Q Models. Data from Problem 4 Using the given information, calculate the...
-
Given the following state for the Bankers Algorithm. 6 processes P0 through P5 4 resource types: A (15 instances); B (6 instances) C (9 instances); D (10 instances) Snapshot at time T0: a. Verify...
-
What are the most important tactics that small companies can use to ensure their long-term financial Security?
-
Alderon Industries manufactures chemicals for various purposes. One process that Alderon uses produces SPL-3, a chemical used in swimming pools; PST-4, a chemical used in pesticides; and RJ-5, a...
-
Draw a graph of f and use it to make a rough sketch of the anti-derivative that passes through the origin. 51. f(x) = sin(x). 0
-
y = x ^ 2 - 3 x + 4 x + y = 4 Solve the system of equations. Show your work.
-
List and discuss the major information security and privacy threats to organizations.
-
1. What breaches of fiduciary duty does the Adelphia case raise? 2. Why do you think the Rigas Family thought they could get away with using Adelphia as their own piggy bank? 3. What allowed the...
-
Describe five common fees assessed on credit card accounts and how they can be avoided. What is the major benefit of having a credit card with a grace period?
-
Robert, a member, is a partner in the firm Cohen & Rowen, CPA. The firm provides a wide variety of services to its clients including appraisal, valuation, and actuarial services. The firm performs...
-
Burgundy Corporation makes plastic and wooden picture frames. The company has assigned $107,000 in monthly manufacturing overhead costs to two cost pools as follows: $67,000 to power costs, and...
-
What are some of the costs of going public?
-
What is required for the market price to equal the fundamental value?
-
What is underpricing? What is leaving money on the table?
-
What is a whistleblower?
-
What is a sale-and-leaseback transaction?
-
A magician during a show makes a glass lens with n = 1.47 disappear in a trough of liquid. What is the refractive index of the liquid? Could the liquid be water?
-
The following selected information was taken from Sun Valley Citys general fund statement of revenues, expenditures, and changes in fund balance for the year ended December 31, 2019: Revenues:...
-
The Excel worksheet form that appears below is to be used to recreate the Review Problem related to Harrald's Fish House. Download the workbook containing this from Connect. On the website you will...
-
The Excel worksheet form that follows is to be used to recreate portions of Review Problem 1. Download the workbook containing this form from Connect. On the website you will also receive...
-
The Excel worksheet form that follows is to be used to recreate the Review Problem related to Medical Diagnostics, Inc. Download the workbook containing this from Connect. On the website you will...
-
Graph the discrete probability distribution given in Table 1 from Example 2. Approach In the graph of a discrete probability distribution, the horizontal axis represents the values of the discrete...
-
Compute the mean of the discrete random variable given in Table 1 from Example 2. Approach Find the mean of a discrete random variable by multiplying each value of the random variable by its...
-
Which of the following is a discrete probability distribution? Approach In a discrete probability distribution, the sum of the probabilities must equal 1, and all probabilities must be between 0 and...
Study smarter with the SolutionInn App