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?

Answer rating: 100% (QA)

Answer This is the excellent case on Multiple IRR NOTE NPV is the sum total o... View the full answer