Problem
1. Find the net present value of a project that has cash flows of -$12,000 in Year 1, +$5,000 in Years 2 and 3, -$2,000 in Year 4, and +$6,000 in Years 5 and 6. Use an interest rate of 12%. Find the interest rate that gives a net present value of zero.
2. A friend asks you for a loan of $1,000 and offers to pay you back at the rate of $90 per month for 12 months.
a. Using an annual interest rate of 10%, find the net present value (to you) of loaning your friend the money. Repeat, using an interest rate of 20%.
b. Find an interest rate that gives a net present value of 0. The interest rate for which NPV = 0 is often called the internal rate of return.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.