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IvanRivera.Unit2-Project-CorporateFinance.MT480

# IvanRivera.Unit2-Project-CorporateFinance.MT480 - Ivan...

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Ivan Rivera Unit 2 Project - Corporate Finance Calculate the NPV and rate of return for each of the following investments. The opportunity cost of INV. C0 C1 1 10000 18000 2 5000 9000 3 5000 5700 4 2000 4000 Investment 1: Year PV factor Cash PV of at 20% flows cash flows 0 1.0000 -10000 -10000 1 0.8333 18000 15000 NPV = 5000 IRR = 80.00% (rate of return) (Please note: IRR has been calculated using the excel function, = IRR(cash flows). Please refer to reference of C18 for the usage of this function). Investment 2: Year PV factor Cash PV of at 20% flows cash flows 0 1.0000 -5000 -5000 1 0.8333 9000 7500 NPV = 2500 IRR = 80.00% Investment 3: Year PV factor Cash PV of at 20% flows cash flows 0 1.0000 -5000 -5000

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1 0.8333 5700 4750 NPV = -250 IRR = 14.00% Investment 4: Year PV factor Cash PV of at 20% flows cash flows 0 1.0000 -2000 -2000 1 0.8333 4000 3333.33 NPV = 1333.33 IRR = 100% a) Which investment is most valuable? According to NPV method, Investment 1 is most valuable because of the highest NPV o As per the rate of return (IRR) method, Investment 4 is the most valuable because it pro the highest return of 100%. b) Suppose each investment would require use of the same parcel of land. Therefor only one. Which one?
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