Homework 4
FIN 336 – Spring 2016
Due: Thursday, Feb 11th
(with Exam 1)
Please use class notes and these Helpful Videos to answer the following questions:
Name: _____________________
Time
Cash Flow
0
-5,000
1
3,000
2
2,000
3
1,000
4
3,000
1.
Compute the discounted payback using a 10 percent discount rate, and then tell me what
the decision rule is.
2.
Compute the NPV using a 20 discount rate, and then tell me what the decision rule is.
3.
Compute the IRR, and then tell me what the decision rule is.
4.
Compute the Modified IRR, with a 10 percent reinvestment rate, and then tell me what
the decision rule is.
5.
Compute the equivalent annual annuity with a 10 percent reinvestment rate, and then
tell me what the decision rule is if you comparing these cash flows to another project.
6.
Label the axis with numbers for the 2 mutually exclusive projects (below), and then write a brief
explanation of which project you would choose based on IRR and which you would choose based
on NPV.
NPV
A
-10,000
10,000
1,000
1,000
Project B
Cash Flows
B
-10,000
1,000
1,000
12,000
Project A
Crossover rate
Discount rate