Question

Dow Chemical has been presented with an investment opportunity which will yield end of year cash flows of $3,350 per year in Years 1 through 4, $3,450 per year in Years 5 through 9, and $8,800 in Year 10. This investment will cost the firm $6,850 today, and the firm's required rate of return is 7 percent. What is the NPV for this investment? Group of answer choices $19,762.30 $–1,976.23 $21,738.53 $17,786.07 $23,714.76

Bristol Myers Squibb has been presented with an investment opportunity which will yield end of year cash flows of $3,650 per year in Years 1 through 4, $2,900 per year in Years 5 through 9, and $10,150 in Year 10. This investment will cost the firm $14,144 today, and the firm's required rate of return is 14 percent. What is the IRR for this investment? Group of answer choices 8.88% 22.20% –2.22% 2.22% 15.54%

General Motors estimates that its required rate of return is 18 percent. The company is considering two mutually exclusive projects whose after-tax cash flows are as follows: Year Project S Project L 0 ($320) ($985) 1 650 (450) 2 435 805 3 360 375 4 (410) 455 What is the modified internal rate of return (MIRR) of each project? Group of answer choices MIRRS = 40.55%; MIRRL = 6.35% MIRRS = 38.10%; MIRRL = 9.73% MIRRS = 40.96%; MIRRL = 10.25% MIRRS = 47.11%; MIRRL = 7.58% MIRRS = 27.45%; MIRRL = 11.78%

Answer 1

1. To find the NPV use NPV function in EXCEL

=NPV(rate,Year1 to Year10 cashflows)-Initial cost

=NPV(7%,Year1 to Year10 cashflows)-6850

NPV=$19,762.30 (Option A is correct)

required rate of return	7%
	Cashflows
Year0	-6850
Year1	3350
Year2	3350
Year3	3350
Year4	3350
Year5	3450
Year6	3450
Year7	3450
Year8	3450
Year9	3450
Year10	8800
NPV	19762.30

2. We have to use IRR function in EXCEL

=IRR(Year0 to year10 cashflows)

IRR= 22.20% (Option B is correct)

	Cashflows
Year0	-14144
Year1	3650
Year2	3650
Year3	3650
Year4	3650
Year5	2900
Year6	2900
Year7	2900
Year8	2900
Year9	2900
Year10	10150
IRR	22.20%

3. Use MIRR function in the EXCEL

=MIRR(Year0 to Year10 cashflows,finance rate,reinvest rate)

finance rate=reinvest rate=18%

=MIRR(Year0 to Year10 cashflows,18%,18%)

Finance rate	18%
reinvest rate	18%
	Project S	Project L
Year0	-320	-985
Year1	650	-450
Year2	435	805
Year3	360	375
Year4	-410	455
MIRR	40.96%	10.25%

Option C is correct