Question: Consider a project with the below cash flows: a. What is the IRR of this stream of cash flows? Assuming the cost of capital is

Consider a project with the below cash flows:

a. What is the IRR of this stream of cash flows? Assuming the cost of capital is 10%, what does the IRR rule say you should do?

b. Assuming the cost of capital is 10% as above, what is the NPV of this project? What does the NPV rule say you should do?

c. Calculate the NPV for different possible discount rates from r = 0% tor = 90%. Graph the resulting NPV profile.

d. Why do you think the NPV gets larger initially for values of r larger than 10%. Doesn't this go against "as discount rates increase, present values decrease"? Why does NPV eventually start to go down as r increases?

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