UGBA 103 – Spring 2011
Problem Set #3
GSI: Florent Rouxelin
61.
Your brother wants to borrow $10,000 from you. He has offered to pay you back $12,000 in a year. If
the cost of capital of this investment opportunity is 10%, what is its NPV? Should you undertake the
investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable
in the cost of capital estimate to leave the decision unchanged.
68.
You are considering an investment in a clothes distributor. The company needs $100,000 today and
expects to repay you $120,000 in a year from now. What is the IRR of this investment opportunity?
Given the riskiness of the investment opportunity, your cost of capital is 20%. What does the IRR
rule say about whether you should invest?
619.
You are a real estate agent thinking of placing a sign advertising your services at a local bus stop.
The sign will cost $5000 and will be posted for one year. You expect that it will generate additional
revenue of $500 per month. What is the payback period?
621.
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 Spring '07
 Berk
 Net Present Value, investment opportunity, Pisa Pizza

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