3. Consider the following cash flows. How many different IRRs are there (hint: search between 20%...

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3. Consider the following cash flows. How many different IRRs are there (hint: search between 20% and 70%)? What would be your decision? year Cash Flow -504 2862 2 -6070 5700 4 2000 0 4

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Answer 1

Answer #1

Answer:

Let X be the IRR

So at IRR

NPV=0

-504/(1+X)^0+2862/(1+X)^1-6070/(1+X)^2+5700/(1+X)^3-2000/(1+X)^4=0

So solving for x we get following graph

NPV 0.10 0.05 0.00 20% 30% 40% 50% 60% 70% -0.05 0.10 0.15 0.20 Rate

From above graph we found that there are three IRR for cash flow.

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Answer 2

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