Question
In: Finance
A $5000 investment today will return $1,313 each year for the next four years with the...
A $5000 investment today will return $1,313 each year for the next four years with the first payment starting in one year. The NPV of this investment is negative at your required return of 2.5%. Which of the following is closest to the internal rate of return on this project?
|
2% |
||
|
4% |
||
|
1% |
||
|
3% |
Solutions
Expert Solution
Ans 2%
| Year | Project Cash Flows (i) | DF@ 2% | DF@ 2% (ii) | PV of Project ( (i) * (ii) ) |
| 0 | -5000 | 1 | 1 | (5,000.00) |
| 1 | 1313 | 1/((1+2%)^1) | 0.980 | 1,287.25 |
| 2 | 1313 | 1/((1+2%)^2) | 0.961 | 1,262.01 |
| 3 | 1313 | 1/((1+2%)^3) | 0.942 | 1,237.27 |
| 4 | 1313 | 1/((1+2%)^4) | 0.924 | 1,213.01 |
| NPV | 0 | |||
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