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You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now.

a) What is the NPV of the opportunity if the interest rate is 6% per year? What is the IRR? Should you take the opportunity?

b) What is the NPV of the opportunity if the interest rate is 2% per year? What is the IRR? Should you take it now?

c) What important lesson do we learn from this problem, when you compare the key assumptions and results in (A) and (B) above? Which finance principle(s) do these results illustrate?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92424429

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