Question

In: Finance

Please answer all the 3 parts 20. When a company’s discount rate increases, which of the...

Please answer all the 3 parts

20. When a company’s discount rate increases, which of the following is true for a project that currently has a net present value of $105,325.69 and an IRR of 15.66%?

A. The company’s IRR will increase

B. The company’s IRR will decrease

C. The company’s net present value will increase

D. The company’s net present value will decrease

26. You have received a settlement from an insurance company which will pay you $100,000 per year for 12 years at the end of each year and J.G. Wentworth wants to buy your annuity. What is JG Wentworth’s annual rate of return (interest rate) if they are willing to pay you $500,000 today?

A. 7.56%

B. 18.21%

C. 16.94%

D. Interest rate cannot be calculated.

36. The preferred method to use in capital budgeting analysis is:

A. Return on equity

B. Net present value

C. Internal rate of return

D. All of the above are equally acceptable methods to use in capital budgeting analysis

Expert Solution

Answer 20:- Option D - The company’s net present value will decrease

( Explanation:- When a company’s discount rate increases, then the NPV of the project decreases as discount rate and the Net present value are inversely proportional to each other. If one decreases then other will increase. Hence, if discount rate increases then NPV will decrease.)

Answer 26:- Option C - 16.94%

( Explanation :- Calculation has been shown below:-

Answer 36:- Option B - Net Present Value

( Explanation:- The preferred method to use in capital budgeting analysis is Net Present value as it considers the Time value of money and net value addition from the project can be derived using this method.)

jeff jeffy answered 1 year ago

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