Suppose you are offered the opportunity to get on the bandwagon of the collector craze for...

Suppose you are offered the opportunity to get on the bandwagon of the collector craze for Beanie Babies. In exchange for $1,000 you will receive 100 assorted canine Beanie Babies. You are absolutely positive that the complete vintage collection will double in value after a decade. The opportunity cost of funds is represented by a 10% interest rate. what is the NPV and IRR? Show equations and work.

Expert Solution

Discount rate	10.000%
Year	0	1	2	3	4	5	6	7	8	9	10
Cash flow stream	-1000	0	0	0	0	0	0	0	0	0	2000
Discounting factor	1.000	1.100	1.210	1.331	1.464	1.611	1.772	1.949	2.144	2.358	2.594
Discounted cash flows project	-1000.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	771.087
NPV = Sum of discounted cash flows
NPV Project =	-228.91
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

IRR is the rate at which NPV =0
IRR	7.18%
Year	0	1	2	3	4	5	6	7	8	9	10
Cash flow stream	-1000.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	2000.000
Discounting factor	1.000	1.072	1.149	1.231	1.320	1.414	1.516	1.625	1.741	1.866	2.000
Discounted cash flows project	-1000.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	1000.000
NPV = Sum of discounted cash flows
NPV Project =	0.000
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

IRR=	7.18%

jeff jeffy answered 1 year ago

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