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?