Question 1 Suppose that you examine two mutually exclusive investments (investment A and B) that correspond...

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Question 1 Suppose that you examine two mutually exclusive investments (investment A and B) that correspond to the listed firms A and B, respectively. The Net Cash Flows of these investments are the following: to t tz t3 A (2000) 500 700 2000 B (10000) 8000 2500 2000 The required rate of return for these investments is 9%. (Hint: You can use this rate for discounting.) 1.1 Define and calculate analytically the Net Present Value (NPV) for each investment. Based on your calculations, what would be your investment decision and why? 1.2 Define and calculate analytically the Internal Rate of Return (IRR) for each investment. Based on your calculations, what would be your investment decision and why? 1.3 Discuss and explain any potential disagreement between the NPV and IRR criteria. Find, if it exists, a range of interest rates for which both the NPV and IRR based decisions coincide? Question 1 Suppose that you examine two mutually exclusive investments (investment A and B) that correspond to the listed firms A and B, respectively. The Net Cash Flows of these investments are the following: to t tz t3 A (2000) 500 700 2000 B (10000) 8000 2500 2000 The required rate of return for these investments is 9%. (Hint: You can use this rate for discounting.) 1.1 Define and calculate analytically the Net Present Value (NPV) for each investment. Based on your calculations, what would be your investment decision and why? 1.2 Define and calculate analytically the Internal Rate of Return (IRR) for each investment. Based on your calculations, what would be your investment decision and why? 1.3 Discuss and explain any potential disagreement between the NPV and IRR criteria. Find, if it exists, a range of interest rates for which both the NPV and IRR based decisions coincide?

Answer rating: 100% (QA)

1 NPV for Investment A NPV 2000 500109 7001092 20001093 2000 45955 5588... View the full answer