Question: plz solve all the problems Problem 5. (14 pts) NPV and IRR criterion. We consider two investment projects with the following cashflows Table 2: Table

 plz solve all the problems Problem 5. (14 pts) NPV andplz solve all the problems

Problem 5. (14 pts) NPV and IRR criterion. We consider two investment projects with the following cashflows Table 2: Table 2: Cashflow of project A & B Date Flow of A Flow of B 01/10/09 -1500 -1500 01/10/10 300 500 01/10/11 700 1000 01/10/12 1000 500 1. (2 pts) Suppose the annual compounding rate is 6%. According to the NPV criterion, which project is preferable? 2. (4 pts) Suppose now that we are more interested in the IRR criterion. Denote ra.To the IRRs of project A and B respectively. Verify that ra= 13.22%. Now calculate the NPV of project B by taking the ra as its discount rate. Determine the project preferred according the IRR criterion, without calculating Ts. Justify your answer. 3. (4 pts) Modify the value of cashflow on 01/10/11 of project B so that the NPV of the new project B' equals the one of project A (assuining that the discount rate is 6%). Decide between B' and A according to IRR criterion. (Round to the nearest hundredth) 4. (4 pts) Admitting the fact that is = 15.78%, we would like to modify the value of cashflows for A, at dates 01/10/10 and 01/10/11, so that the choice between B and the resulting new project A' is indifferent, according to both the NPV and IRR criteria. Determine the cashflows of project A. (Round to the nearest hundredth)

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