Quiz 4 Solution
Tuesday, October 15, 2013 during class
Problem 1. [5 points] Determine the IRR (0< IRR <1) in the cash flow set illustrated below
$ 800
0 1
2
$ 200
$ 300
Solution:
NPV 300 200 1 800 2
4 3 2 1 0
1
1 IRR
Since is in the range of [0,1], the solution is
3 1
IRR
4 3
Solution:
(i)
1 1
1 d 1 0.05
P 3, 000 1 1, 000 2 4, 000 4
7, 054$
(ii)
7, 000
A 1139$
CRF
(iv) I drop this part because I should have stated the assumption that the 10% interest
rate does not include inflation rate
1 1
bank :
1 d 1 0.1
bank : d (1 d )(1 e ) 1 0.133
1 1
1 d 1 0.133
CRF (1 ) 5.36
10