1. A colleague asks for your help in finding the discount rate where the NPV=0 for a set of cash flows. You quickly recall that this is the IRR for a project. Answer in %, rounding to 2 decimals.
Year 0 cash flow = -118,000
Year 1 cash flow = 43,000
Year 2 cash flow = 37,000
Year 3 cash flow = 45,000
Year 4 cash flow = 39,000
2. Your firm has limited capital to invest and is therefore interested in comparing projects based on the profitability index (PI), as well as other measures. What is the PI of the project with the estimated cash flows below? The required rate of return is 19.9%. Round to 3 decimals.
Year 0 cash flow = -890,000
Year 1 cash flow = -110,000
Year 2 cash flow = 350,000
Year 3 cash flow = 520,000
Year 4 cash flow = 540,000
Year 5 cash flow = 420,000