
Economics Economics Forum  Financial Mathematics, Econometrics, Operations Research, Mathematical Finance, Computational Finance 
 LinkBack  Thread Tools  Display Modes 
December 12th, 2016, 08:26 AM  #1 
Newbie Joined: Dec 2016 From: Indiana Posts: 2 Thanks: 0  NPV and IRR problems
Can someone check if I did part 1 correctly and help explain part 2? 1. Alpha is considering Project A with a cost of capital of 6% A: 10,000, 3500, 3500, 3500 to calculate the NPV I did 10,000 + 3500/1.06 + 3500/(1.06^2) + 3500/(1.06^3) = 644.46 I used a ti 84 plus to calculate the IRR which I got 2.48 so the NPV < 0 which is the investment would subtract value from the firm and the IRR which is 2.48 is less than the 6% cost of capital. I should reject Plan A 2. Delta Co. is considering Project D D: 3,000, 5000, 5000, 5000, 20,000 The IRR I was given was 8.1 and the NPV at 12 percent was 838. The NPV is > 0 but the IRR is < the cost of capital. I don't think I should accept the project because the cash outflow starts out positive cash flows in years 13 with 5000 but in year 4 its 20,000. But the NPV is positive so it would still add value. Is there a way to check this with numbers or can someone explain to me if I should accept this? 
December 12th, 2016, 10:50 AM  #2  
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 8,761 Thanks: 607  Quote:
Code: 0 3,000 1 5,000 360 1,640 2 5,000 197 6,837 3 5,000 820 12,657 4 20,000 1,519 5,824  
December 12th, 2016, 11:28 AM  #3 
Newbie Joined: Dec 2016 From: Indiana Posts: 2 Thanks: 0 
I did the math and got the same answer as you. 5000/1.12+ 5000/(1.12^2) + 5000/(1.12^3) + 20000/(1.12^4)  3000 = 3701 But in the question they tell me that IRR= 8.1 and NPV = 838 Maybe its a typo. I guess the word problem is asking if NPV > 0 but the IRR < cost of capital, do I accept the project? 
December 12th, 2016, 11:34 AM  #4 
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 8,761 Thanks: 607 
No idea...contact Warren Buffet? 

Tags 
irr, npv, problems 
Thread Tools  
Display Modes  

Similar Threads  
Thread  Thread Starter  Forum  Replies  Last Post 
How to master maths  should we solve simple problems or variety of problems?  joshis1  Algebra  2  October 10th, 2014 03:55 PM 
Please need help with these problems  n777l  Complex Analysis  3  September 10th, 2013 03:03 AM 
4 problems  storybookending  Algebra  7  July 14th, 2013 09:53 PM 
Log problems and word problems help  thenewkid77  Algebra  1  March 11th, 2010 07:27 AM 
Help with two problems.  LinAlg  Linear Algebra  0  February 14th, 2010 10:26 AM 