Question 9 (20 marks Section A. Use Figure 1 (last page) that shows the net present value profile of two projects R and F to answer the following questions: 1. What is the internal rate of return on project F? (2 marks) 2. Determine the "approximate" discount rate at which you would be indifferent between the two projects? (2 marks) 3. Find the approximate" net present value of project R when the discount rate is 6% (2 marks) 4. If the future cash flows of project Rover its three-year life are $500, $4,000, and $5,385 estimate the initial investment. (4 marks) 5. If the two projects are mutually exclusive, over what discount rate range(s) would project F be preferred to project R? Explain. (2 marks) 6. If the two projects are independent and the discount rate is 17%, what decision should the firm make? Why? (2 marks) 7. If projects R and F are independent and the discount rate is less than 9%, what decision should the firm make? Why? (2 marks) Section B. 1. Briefly list the potential problems with the use of the internal rate of return as an investment decision criterion. (2 marks) 2. Briefly describe the sensitivity analysis and list its main advantages (2 marks) Figure 1. NPV Profiles 16000.00 NPV(R) -- NPV(F) 12000.00 B000.00 4000 00 269 28% 10% 12% 14% 16% 78% - 20% 0.00 0% 6% 2% 4% Net Present Value 4000.00 8000.00 ho - 12000.00 16000.00 2000000 Discount Rate