Question
In: Finance
Lee and Joe are both considering the same project with the cash flows shown below. Lee...
Lee and Joe are both considering the same project with the cash flows shown below. Lee is content earning 8 percent on the project but Joe wants to earn at least 12 percent. Who, if either, should accept this project? Year 0 1 2 3 Cash flow -$67,000 $18,000 $24,000 $42,000
A. neither Lee nor Joe
B. both Lee and Joe
C. Lee, but not Joe
D. Lee, Joe can go either accept or reject as his NPV is zero
E. Joe, but not Lee
Solutions
Expert Solution
Calculating IRR of project,
67,000 = 18,000/(1 + IRR) + 24,000/(1 + IRR)2 + 42,000/(1 + IRR)3
Using Trial and Error,
IRR = 10.55%
As Lee require 8% so project will be accepted but Joe won't accept as 12% > 10.55%
Lee, but not Joe
jeff jeffy answered 2 years agoRelated Solutions
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Suppose your firm is considering investing in a project with the
cash flows shown below, that the required rate of return on
projects of this risk class is 8 percent.
Time:
0
1
2
3
4
5
6
Cash flow:
–$8,600
$1,080
$2,280
$1,480
$1,480
$1,280
$1,080
Use the IRR decision rule to evaluate this project.
(Negative amount should be indicated by a minus sign. Round
your answer to 2 decimal places.)
IRR%=
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9 percent, and that the maximum allowable payback and discounted
payback statistics for the project are 2.0 and 3.0 years,
respectively.
Time:
0
1
2
3
4
5
6
Cash flow:
−$7,600
$1,190
$2,390
$1,590
$1,590
$1,390
$1,190
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(Negative amount should be indicated...
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Suppose your firm is considering investing in a project with the
cash flows shown below, that the required rate of return on
projects of this risk class is 12 percent, and that the maximum
allowable payback and discounted payback statistic for the project
are 2 and 3 years, respectively.
Time
0
1
2
3
4
5
6
Cash Flow
-1,150
30
570
770
770
370
770
Use the discounted payback decision rule to evaluate this project;
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Suppose your firm is considering investing in a project with the
cash flows shown below, that the required rate of return on
projects of this risk class is 10 percent, and that the maximum
allowable payback and discounted payback statistic for the project
are 2 and 3 years, respectively.
Time
0
1
2
3
4
5
6
Cash Flow
-1,050
150
450
650
650
250
650
Use the payback decision rule to evaluate this project; should it
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Suppose your firm is considering investing in a project with the cash flows shown below, that...
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cash flows shown below, that the required rate of return on
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Time: 0 1 2 3 4 5 6
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Time
0
1
2
3
4
5
6
Cash Flow
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40
560
760
760
360
760
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cash flows shown below, that the required rate of return on
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Time:
0
1
2
3
4
5
6
Cash
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–$5,000
$1,270
$2,470
$1,670
$1,670
$1,470
$1,270
Use the discounted payback decision rule to evaluate this
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