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Unformatted text preview: However, if the cost of capital is less than the crossover rate the two methods lead to different project selections--a conflict exists. When a conflict exists the NPV method must be used. Because of the sign changes and the size of the cash flows, Project has multiple IRRs. Thus, a calculator's IRR function will not work. One could use the trial and error method of entering different discount rates until NPV = $0. However, an HP can be "tricked" into giving the roots. After you have keyed Project Delta's cash flows into the g register of an HP-10B, you will see an "Error-Soln" message. Now enter 10 & STO & IRR/YR and the 14.53% IRR is found. Then enter 100 & STO & IRR/YR to obtain IRR = 456.22%. Similarly, Excel or Lotus 1-2-3 can also be used. Answers and Solutions: 11 - 14...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08