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1.You are considering a $50000 project and feel that a 12 percent rate of return is reasonable given the nature of the risk involved. The project will

generate Cash Flows of $8000 in Year 1 $19800 in Year 2 $43000 in Year 3 and $7000 in Year 4. What is the Net Present Value (NPV) of the project? $3673.12 $7982.47 $620.11 $2284.60

2.A firm IS CONSIDERING the following project:

Year CASH FLOW (Project X)

0 -$27000

1 $14000

2 $10000

3 $31000

4 $18000

What is the IRR for Project X?

29.83% 14.81% 34.66% 48.81%

3.

The Descartes Rule of Sign: ALLOWS for determining the ONE TRUE Internal Rate of Return (IRR) when sign changes in Cash Flows are properly

considered PROJECTS the number of NPVs a project has when sign changes in Cash Flows are considered. Determines the MINIMUM number of IRRs a project can have when there are MORE THAN ONE sign change in a stream

of capital budgeting project Cash Flows Determines the MAXIMUM number of IRRs a project can have when there are MORE THAN ONE sign change in a stream

of capital budgeting project Cash Flows

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