Homework Answers
Answer a.
If discount rate is 0%:
Net present value = -$7,350 + $5,100/1.00 + $19,200/1.00^2
Net present value = $16,950
If discount rate is 50%:
Net present value = -$7,350 + $5,100/1.50 + $19,200/1.50^2
Net present value = $4,583
If discount rate is 100%:
Net present value = -$7,350 + $5,100/2.00 + $19,200/2.00^2
Net present value = $0
Answer b.
IRR is the rate at which NPV is 0. From above calculation, IRR is 100%
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Chapter 5
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