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Darrell has the opportunity to invest in KEN Co. He can invest $100 today, which returns to him $60 at the end of 1 year and another $60 at the end of 2 years. (The original investment is not returned except through these future payments.)

a. Suppose Darrell uses a 10% annual interest rate when discounting future payments. Calculate the present discounted value of this investment in KEN Co. Darrell learns of a second investment opportunity, this one in SPEN Co. , which requires him to invest $80 today, and then in 1 year it pays off $90. (The original investment is not returned except through the future payment.)

b. What is the (annual) internal rate of return on the investment in SPEN Co.

c. For what nonnegative (annual) interest rates is the present discounted value of the KEN Co investment larger than the present discounted value of the SPEN Co. investment?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92434101

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