Question
In: Finance
Problems with IRR White Rock Services Inc. has an opportunity to make an investment with the...
Problems with IRR
White Rock Services Inc. has an opportunity to make an investment with the following projected cash flows.
|
Year |
Cash Flow |
|
0 |
$1,690,000 |
|
1 |
−3,886,000 |
|
2 |
2,225,021 |
a. Calculate the NPV at the following discount rates and plot an NPV profile for this investment:
0%,
5%,
7.5%,
10%,
15%,
20%,
22.5%,
25%,
30%.
b. What does the NPV profile tell you about this investment's IRR?
c. If the company follows the IRR decision rule and their cost of capital is
15%,
should they accept or reject the opportunity? Why is it hard to make a decision on this investment based solely on the IRR rule?
d. If the company's cost of capital is
15%,
should they reject or accept the investment based on its NPV?
Solutions
jeff jeffy answered 5 months agoRelated Solutions
White Rock Services Inc. has an opportunity to make an investment with the following projected cash...
White Rock Services Inc. has an opportunity to make an
investment with the following projected cash flows.
Year
Cash Flow
0
$1,680,000
1
−3,885,000
2
2,225,027
a. Calculate the NPV at the following discount rates and plot an
NPV profile for this investment: 0%, 5%,
7.5%,10%,15%,20%,22.5%,25%,30%.
b. What does the NPV profile tell you about this investment's
IRR?
c. If the company follows the IRR decision rule and their cost
of capital is 15%, should they accept or reject the...
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7. Problems and Applications Q7 Three students have each saved $1,000. Each has an investment opportunity...
7. Problems and Applications Q7
Three students have each saved $1,000. Each has an investment
opportunity in which he or she can invest up to $2,000. Here are
the rates of return on the students’ investment projects:
Student
Return
(Percent)
Kevin
4
Rajiv
7
Simone
15
Assume borrowing and lending is prohibited, so each student uses
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Hard Rock Cafe: Operations Management in Services In its 48 years of existence, Hard Rock has...
Hard Rock Cafe: Operations Management in
Services
In its 48 years of existence, Hard Rock has grown from a modest
London pub to a global power managing 163 restaurants, 23
hotels/casinos, and live music venues. This puts Hard Rock firmly
in the service industry—a sector that employs over 75% of the
people in the U.S. Hard Rock moved its world headquarters to
Orlando, Florida, in 1988 and has expanded to more than 50
locations throughout the U.S., serving over 100,000...
Hard Rock Cafe: Operations Management in Services In its 48 years of existence, Hard Rock has...
Hard Rock Cafe: Operations Management in
Services
In its 48 years of existence, Hard Rock has grown from a modest
London pub to a global power managing 163 restaurants, 23
hotels/casinos, and live music venues. This puts Hard Rock firmly
in the service industry—a sector that employs over 75% of the
people in the U.S. Hard Rock moved its world headquarters to
Orlando, Florida, in 1988 and has expanded to more than 50
locations throughout the U.S., serving over 100,000...
Hard Rock Cafe: Operations Management in Services In its 48 years of existence, Hard Rock has...
Hard Rock Cafe: Operations Management in
Services
In its 48 years of existence, Hard Rock has grown from a modest
London pub to a global power managing 163 restaurants, 23
hotels/casinos, and live music venues. This puts Hard Rock firmly
in the service industry—a sector that employs over 75% of the
people in the U.S. Hard Rock moved its world headquarters to
Orlando, Florida, in 1988 and has expanded to more than 50
locations throughout the U.S., serving over 100,000...
Hard Rock Cafe: Operations Management in Services In its 48 years of existence, Hard Rock has...
Hard Rock Cafe: Operations Management in
Services
In its 48 years of existence, Hard Rock has grown from a modest
London pub to a global power managing 163 restaurants, 23
hotels/casinos, and live music venues. This puts Hard Rock firmly
in the service industry—a sector that employs over 75% of the
people in the U.S. Hard Rock moved its world headquarters to
Orlando, Florida, in 1988 and has expanded to more than 50
locations throughout the U.S., serving over 100,000...
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