Use the incremental IRR rule to correctly choose between the investments in Problem 21 when the cost
Question:
Use the incremental IRR rule to correctly choose between the investments in Problem 21 when the cost of capital is 7%. At what cost of capital would your decision change?
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
Step by Step Answer:
Timeline To calculate the incremental IRR subtract A from B ...View the full answer
Related Video
The internal rate of return, or IRR, is a metric used to measure the profitability of an investment. It is the discount rate that makes the net present value of an investment equal to zero. To calculate the IRR, we need to know the investment\'s cash flows. These are the inflows and outflows of cash that will result from the investment. For example, an investment in a property might have cash outflows for the purchase price, closing costs, and any renovations, and cash inflows from rent and eventual sale of the property. The IRR is the discount rate at which the NPV of the investment is equal to zero. There are many ways to calculate IRR, from simple spreadsheet functions to more complex financial modeling software. It\'s worth noting that IRR can be a bit tricky when it comes to projects that don\'t have a consistent cash flow over time. These types of investments are known as \"irregular cash flow\" and the IRR might be misleading or not suitable to calculate. There are other metrics to evaluate these investments such as Modified Internal Rate of Return (MIRR) which is a variation of IRR and is used to get more accurate results.
Students also viewed these Corporate Finance questions
-
Your companys weighted-average cost of capital is 11 percent. It is planning to undertake a project with an internal rate of return of 14 percent, but you believe this project is not a wise...
-
The firms weighted average cost of capital is 11%, and it has $1,500,000 of debt at market value and $400,000 of preferred stock at its assumed market value. The estimated free cash flows over the...
-
Write a program for setting three bits of an unsigned char to 1. The function set 3bits should have four parameters: the unsigned char to be changed and the three bits which are to be set to 1. For...
-
A non-dividend-paying common stock is trading at $100. Suppose you are considering a European put option with a strike price of $110 and one year to expiration. What is the annually compounded...
-
BioElectroMechanical Systems (BEMS) is a start-up company with high potential and little available cash. They obtain $500,000 for necessary technology from a venture capitalist who charges them 24...
-
Explain briefly how you discover business classes and provide an example.
-
The Purdue Pegboard Task is a standard test for motor skills. It consists of a board with a series of holes and three types of pieces: pegs, washers and standoffs, stored in a depression at the top...
-
4. Let f(x, z) = C ([0, 1] R) be strictly convex with respect to its second argument and define for y(x) = C[0,1], J (y) = [* f(x, y'(x)) dx. (a) (7 points) Consider J(y; v) on the set D = {y C [0,...
-
return and covariance matrix are given as follows. L2 Three securities are available for investment, and their expected rates of 3 = 0.12 0.02 0.02 2 01 012 2 021 02 013 023 2 031 032 03 = 0.04...
-
You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firms manufacturing facility. You...
-
You work for an outdoor play structure manufacturing company and are trying to decide between two projects: You can undertake only one project. If your cost of capital is 8%, use the incremental IRR...
-
Show that the equation of a line through (x 1 , y 1 ) and (x 2 , y 2 ) is given by the determinant equation in Exercises 53. Data from exercise 53 Use the determinant to write an equation of the line...
-
Suppose a single die is rolled. Find the probabilities. a. 6 , given that an odd number was rolled b. 5 , given that an odd number was rolled c. odd, given that the rolled number was a 6 d. odd,...
-
This experiment has two mutually exclusive events, \(A\) and \(\bar{A}\), that form a partition of the sample space \(S\). The number of elements in each set is shown in each region. Find the...
-
A researcher chooses three leaves from a target environment and classifies each sample as fungus free or contaminated. Suppose that a leaf has a probability of 0.2 of being infected. In Problems...
-
Suppose a pair of dice are rolled. Consider the sum of the numbers on the top of the dice and find the probabilities. a. 5 , given that exactly one die came up 2 b. 3 , given that exactly one die...
-
What is the expectation for the \(\$ 1\) bets in Problems 21-30 on a U.S. roulette wheel? See Figure 13.8 Four-number bet 4 16 33 1 20 14 31 9 22 18 29 28 12 35 3 26 0 32 15 19 4 21 2 25: 4 21 2 25...
-
An investor has a long position in a nondividend-paying stock, and, additionally, has a long collar on this stock consisting of a 40-strike put and 50-strike call. Determine which of these graphs...
-
Under what conditions is the following SQL statement valid?
-
What are the roles and responsibilities of the benefit owner and BPM activity sponsor?
-
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. a. Compute Mydecos PE ratio each year from 2009 to 2013. In which year was it the highest? b. What was Mydecos...
-
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. a. Compute Mydecos ROE each year from 2009 to 2013. b. Compute Mydecos ROA each year from 2009 to 2013. c. Which...
-
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. Was Mydeco able to improve its ROIC in 2013 relative to what it was in 2009? Table continue TABLE 2.5 2009-2013...
-
The cumulative incidence of myocardial infarction is 180.0 new cases per 10,000 persons among individuals with severe hypertension. In contrast, the cumulative incidence of myocardial infarction is...
-
Rundle Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the...
-
What financial statement, which can be reported with or separate from the income statement, includes income-related items that affect the balance sheet but are not included in net income?
Study smarter with the SolutionInn App