Assignment

FIN 3400

NPV and IRR Problem Set

1. You invest $500 in a project that promises to pay you the following returns:

Year Amount

1 $200

2 $150

3 $50

4 $300

You need an 8% return on this project given its risk.

What is the NPV?

What is the IRR?

2. A one-year investment of $100 has an NPV of zero. The IRR of the project is 10%. Is this a good

investment?

3. Consider the following investment:

Year Amount

0 -100

1 +25

2 +25

3 +25

4 +30

What is the IRR? Given its risk you require a 3% return on this investment. How much should you

pay in Year 0 to reach your required return?

4. Consider the following investment:

Year Amount

0 -100

1 230

2 -132

What is the IRR? What is the NPV at a 10% interest rate? Is this a good investment?