CFAI book coporate finance question concerned, discount, question, multiple

luckygiftvn

1.Consider the two projects below. The CFs as well as the NPV and IRR for the two projects are given. For both projects, the requried rate of return is 10%.
0 1 2 3 4 NPV IRR
project1 100 36 36 36 36 14.12 16.37
project2 100 0 0 0 175 19.53 15.02
What discount rate would result in the same NPV for both projects?
A 010
B 1015.02
C 15.0216.37
D >16.37
2. Wilson Flannery is concerned that this project has multiple IRRs.
YR 0 1 2 3
CFs 50 100 0 50
How many discount produce a zero NPV for this project?
A 1, 0
B 2, 032%
C 2, 062%
D2, 092%
Please help…how to calculate these discount rates?

mnieman

fkcfa
that would be a completely wrong strategy to follow on this exam. Sometimes you might end up calculating a whole lot of stuff that might not even have been necessary. Read the question before you start out on any analysis. Time is not an issue on the exam, contrary to what many others would have said.

wilslm

Got it…hey cpk123 and jmuc85, thanks a lot for your help! You guys are good!

Bulla564

First problem  set up a new project as jmuc85 has done above with the diffs of the cash flows for each indiv. project given and calculate its IRR.
2nd problem  plug and chug the 4 choices provided. do not try to calculate IRR using your calculator.

JRossSter

1. CFo 0
CFj 36
CFj 36
CFj 36
CFj 139
compute irr = 13.15%f
2. just plug into the different discount rates into your calculator, see which ones produce an npv close to 0.

dvilayphet

Okay I am not going to answer these for you. Get the booklet that came with your calculator or check the Schweser section on this subjects. There are numerous examples of how you key them in and the result pops out.