4.Consider the following cash flows: C0C1C2C3C4$22+$20+$20+$20$40

a.Plot the NPV function in Excel for discount rates between 0% and 40%, using 5% increments. First create a column with the following values for the discount rate: 0%, 5%, 10%, ..., 40%. Then calculate the NPV at each of these discount rates. You can calculate the NPV using the formula or using the Data Table feature in Excel. Select the two columns (r and NPV) and go to Insert/Scatter to plot the NPV function.

You dont need to submit the Excel file simply paste the chart in the same Word file that includes the answers to the other questions.

b.How many IRRs does this project have?

c.Use the IRR function in Excel to find the IRR(s). d.Would you invest in the project if the discount rate is 5%? 20%? 40%?

2 5.Here are the cash flows for two mutually exclusive projects:

ProjectC0C

1Project | C0. | C1

A $100 | +$130

B $200 | +$240

a.What is the IRR of each project?

b.At what discount rate are you indifferent between the two projects?

c.For what range of discount rates would you choose project A and for what range of discount rates would you choose project B?

6.You are deciding between two mutually exclusive investment opportunities.

Project A requires an investment of $1,000 at t = 0 and generates a perpetual cash flow of $150 starting at t = 1.

Project B requires an investment of $1,000 at t = 0 and generates a cash flow of $60 at t = 1. After t = 1 the cash flow grows at the rate of 4% in perpetuity (so the cash flow at t = 2 is 4% higher than the cash flow at t = 1, the cash flow at t = 3 is 4% higher than the cash flow at t = 2 and so on).

a.Which investment has the higher IRR?

b.Which investment has the higher NPV when the cost of capital is 6%?

c.Which investment should you pick (if any) if the cost of capital is 6%?

d.For what range of values for the opportunity cost of capital would you make the opposite decision, compared to part c?