Question
In: Finance
(1) In general, if NPV = 0, then what IRR would be equal to? (2) In...
(1) In general, if NPV = 0, then what IRR would be equal to?
(2) In general, if NPV > 0, then what PI (Profitability Index) would be equal to?
Solutions
Expert Solution
1. If NPV = 0, Then the IRR would be equal to the Weighted average cost of capital (WACC) Which is also termed as Discount rate.
The Net present value is the Present worth of the project, it is calculated by discounting the cash flows of the project which is the Wacc and then subtracted from the intiial investment of the project, and the internal rate of return is the return at which the present value of cash flows if discounted comes equal to the initial investment, so when the NPV = 0 then the IRR will be equal to the WACC.
2. If NPV >0 , then the PI would be Greater than
If the NPV is more than 1, then it means that the present value of cash flows is greater than the initial investment and the Profitbaility index is claculated by dividing the sum of present value of cash flows by the initial invesment, so of the Net present value is more than 1, the Profitbality index would result in Greater than 1.0.
jeff jeffy answered 1 year agoRelated Solutions
1(a). When NPV=0, then: Select one: a. IRR less than 0 b. IRR=required return c. IRR...
1(a). When NPV=0, then: Select one:
a. IRR less than 0
b. IRR=required return
c. IRR greater than 0
d. IRR greater than required return
e. IRR=0
1(b). The relationship between NPV of a project and the required
rate of return is: Select one:
a. positive
b. random
c. negative
d. determined by the relationship of NPV to IRR
e. none of the answers is correct
1. Describe the relationship between the IRR and the discount rate when NPV=0. 2. Given the...
1. Describe the relationship between the IRR and the discount
rate when NPV=0.
2. Given the following information, should a company invest in a
given capital?
Initial Investment
$675,000
Annual Cash Inflow
$158,000
Salvage Value
$80,000
Years of life of the equipment and project:
6
Minimum required rate of return:
10%
Depreciation
$99,167
Payback Period in Years
4.3
Accounting Rate of Return
8.72%
NPV
$27,553.5
IRR
11.32%
If you earn the WACC on a project, (IRR = WACC) or NPV = 0, what...
If you earn the WACC on a project, (IRR = WACC) or NPV = 0,
what have you accomplished for your shareholders?
1A. A semiannual bond pays a 4.5 % coupon for the next 27 years.
If investors want a 7.3% return, what are they willing to pay for
the bond?
If the IRR for a project is 20%, then the project's NPV would be:
If the IRR for a project is 20%, then the project's NPV would
be:
1) What are the main differences between the NPV method and the IRR? 2) When does...
1) What are the main differences between the NPV method and the
IRR?
2) When does IRR give you the wrong answer?
3) How does the MIRR avoid the IRR shortcomings?
Please answer all sections with 5-7 sentences for each
question.
NPV & IRR: Find the NPV (assume 8% just to calculate NPV initially) & IRR of...
NPV & IRR:
Find the NPV (assume 8% just to calculate NPV initially) &
IRR of these projects. When would you choose one over the other
(i.e. what is the crossover rate)? Draw the NPV profile using 11
intervals of interest rates ranging from (and including) 0% to
100%. Place all data, ratios, calculations, findings, etc. in the
first Excel sheet with references to the information in other
sheets.
Time
A CF
B CF
0
-10000
-10000
1
12000
9000...
Period 0 1 2 3 4 5 6 7 8 9 10 11 PBP NPV IRR...
Period
0
1
2
3
4
5
6
7
8
9
10
11
PBP
NPV
IRR
Project A
$
(1,000,000)
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 400,000
Project B
$
(1,000,000)
$ 500,000
$ 500,000
$ 500,000
Project C
$
(80,000)
$ 1,040
$ 9,456
$ 11,405
$ 18,567
$ 47,453
$ 6,394
$ 45,727
$ 51,933
$ 85,625
Project D
$
(400,000)
$ 4,161...
Period 0 1 2 3 4 5 6 7 8 9 10 11 PBP NPV IRR...
Period
0
1
2
3
4
5
6
7
8
9
10
11
PBP
NPV
IRR
Project A
$
(1,000,000)
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 200,000
$ 400,000
Project B
$
(1,000,000)
$ 500,000
$ 500,000
$ 500,000
Project C
$
(80,000)
$ 1,040
$ 9,456
$ 11,405
$ 18,567
$ 47,453
$ 6,394
$ 45,727
$ 51,933
$ 85,625
Project D
$
(400,000)
$ 4,161...
What is the difference between NPV and IRR? Which one would you choose for evaluating a...
What is the difference between NPV and IRR? Which one would you
choose for evaluating a potential investment and why? Be sure to
support your reasoning with evidence
In an essay, discuss the advantages and disadvantages of using (1) NPV analysis and (2) IRR...
In an essay, discuss the advantages and disadvantages of using
(1) NPV analysis and (2) IRR analysis to evaluate projects.
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