Calculate internal rate of return, Finance Basics

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1. Each project has RM 10,000, and the cost of capital for each project is 12%. The projects' expected cash flows are as follows:

Expected Net Cash Flows

YEAR

PROJECT A

PROJECT B

0

(10,000)

(10,000)

1

6,500

3,500

2

3,000

3,500

3

3,000

3,500

4

1,000

3,500

a)  Calculate each project's internal rate of return (IRR), and modified internal rate of return (MIRR).

b)  How might a change in the cost of capital produce a conflict between the NPV and IRR ranking of these two projects? Would this conflict exist if k were 5%

(Hint: Plot the NPV profiles)

2.  A 10 year, 12% semi annual coupon bond, with a par value of $1000, may be called in 4 years at a call price of $1060. The bond sells for $1100. (assume that the bond has just been issued)
1) What is the bond's yield to maturity?
2)What is the bonds current yield?
3)What is the capital gain or loss yield?
4)What is the bond's yield to call?


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