PS 8 - NPV,IRR,ERR,BC Criterions 2

PS 8 - NPV,IRR,ERR,BC Criterions 2 - received 16 payments...

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IE 150 Problem Set 8 NPV, IRR, ERR, Payback 2 Instructions:  Write/Type/Print your answers on yellow pad or bond paper (NO A4’s). Use a different sheet per  problem.  Use phrases  to describe what you are doing. Do not present it as just a series of equations and  numbers.  Label each step. Ex: “Step 1: Set-up the Total Revenue Equation”, “Step 4: Solve for the NPV”.  Box the final answers.  Use clear formatting: Indent at each step. Show your answers in just 1 column. (The problem set  will be read from top to bottom, and not top bottom diagonal right bottom.) Problem 1:  A 20 year bond with a face value of $5,000 is offered for sale at $3,800. The nominal rate of interest on  the bond is 7%, paid semi-annually. This bond is now 8 years old (wherein the owner has already 
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Unformatted text preview: received 16 payments). If the bond is purchased for $3,800 what effective annual rate of interest would be realized on this investment opportunity? Problem 2: A small company purchased now for $23,000 will lose $1,200 each year for the first four years. An additional $8,000 invested in the company during the fourth year will result in a profit of $5,500 each year from the 5 th year through the 15 th year. At the end of 15 years, the company can be sold for $33,000. a) Calculate the IRR (better to use interpolation here). b) Calculate the FW if MARR = 12%. c) Calculate the IRR when ERR is at 12%. d) When will the company breakeven? (Use discounted payback)....
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