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1 .Assume Company ABC wants to know whether it should buy a $500 piece of equipment.

It projects
that it will increase profits by $100 in Year 1, $200 in Year 2, and $300 in Year 3. Calculate the IRR of
the proposed project.

Period
0
1
2
3
IRR

Cash Inflow
$500
$100
$200
$300
8%

=IRR (cash flows, [guess])

2. Suppose that you have $1,250 today and


you would like to know how long it will take
you double your money to $2,500. Assume

that you can earn 9% per year on your investment.


Present Value
Future Value
Annual Rate

$1250
$2500
9%

Number of Periods

8.04

=NPer (rate, pmt, PV, FV, type)

3. Shoes for You's will expect to invest $500,000 for the development of their new product. The company
estimates that the first year cash flow will be $200,000; the second year cash flow will be $300,000, and
the third year cash flow to be $200,000. The expected return of 10% is used as the discount rate.
Annual Discount Rate
Initial Investment
1st Year Return
2nd Year Return
3rd Year Return
Net Present Value

10%
$500,000
$200,000
$300,000
$200,000
$80,015.02

=NPV (rate, value1, value2, value3,..)

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