PROBLEM II

Consider a project with the following cash flows.

Year Cash Flow

0 -1,000,000

1 850,000

2 600,000

3 500,000

4 300,000

5 200,000

6 -1,500,000

1. Compute the NPV of these cash flows for a discount rate of 0%, 5%, 10%, 15%, 20%,75%.
2. Plot the NPV (y-axis) against discount rate (x-axis).
3. Use the IRR function in Excel to compute the two IRRs of these cash flows.
4. Use Solver in Excel to figure out the discount rate at which the NPV would be maximized.