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How much should you pay to reach your required return

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Reference no: EM131846551

Assignment: NPV and IRR Problem Set

1. You invest $500 in a project that promises to pay you the following returns:

Year

Amount

1

$200

2

$150

3

$50

4

$300

You need an 8% return on this project given its risk. What is the NPV?

What is the IRR?

2. A one-year investment of $100 has an NPV of zero. The IRR of the project is 10%. Is this a good investment?

3. Consider the following investment:

Year

Amount

0

-100

1

+25

2

+25

3

+25

4

+30

What is the IRR? Given its risk you require a 3% return on this investment. How much should you pay in Year 0 to reach your required return?

4. Consider the following investment:

Year

Amount

0

-100

1

230

2

-132

What is the IRR? What is the NPV at a 10% interest rate? Is this a good investment?

Reference no: EM131846551

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