Question

13. NDR is a company that is deciding between three projects, High, Medium, and Low. The projects have internal rate of returns (IRR) and cash flows as listed in the table below. Year 3 2 1 Project IRR 12.1% $100 -45 -35-45 A 35 -15 9.0% -$ 50 35 В -9 18 18 7.8% -$25 C Unfortunately, NDR doesn't know what discount rate to use to value the projects in order to calculate the net present values. In which project(s) should NDR invest if its discount rate is somewhere between 0% and 8.5%? A only a. A and B b. C only C. A, B, and C d. None of the above е.

Answer 1

Ans is e - None of the above.

Project A is with negative returns so no point investing there

Project B and Project C both are with Positive returns.

Project B can give positive NPV if discounted at 8.5% which is highest of the range given the question. So this project should be accepted.

	0	1	2	3	NPV
PV B	-50	32.25806	29.73094	-11.7436	0.245378

Project C is also with positive NPV if discounted at 7.5% but negative at 8% and above. however as per question range might go somewhere between 0 to 8.5% and 7.5% is in between so this project should be accepted.

	0	1	2	3	NPV
PV C	-25	16.74419	15.57599	-7.24465	0.075528

However in options combination of B and C is not given so answer is None of the above.