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problem: Consider the project with the given expected cash flows:

Year 

Cash flow

0

-$ 500000

1

$100,000

2

$110,000

3

$550,000

[A] If the discount rate is 0%, compute the project's net present value?
[B] If the discount rate is 4%, compute the project's net present value?
[C] If the discount rate is 8%, compute the project's net present value?
[D] If the discount rate is 10%, compute the project's net present value?
[E] Compute this project's internal rate of return?

Now make a chart where the discount rate is on the horizontal axis (the "x" axis) & the net present value on the vertical axis [the Y axis]. Create the net present value of the project as a function of the discount rate by dots for the 4 discount rates. Connect the 4 points using a free hand 'smooth' curve. The curve intersects the horizontal line at a particular discount rate. find out the discount rate at which the graph intersects the horizontal axis?

Look at the graph you draw & prepare a short paragraph stating what the graph 'shows'. 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M918218

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