Week 9 Solutions

Week 9 Solutions - Week 9 Solutions Chapter 2 14. Assuming...

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Week 9 Solutions Chapter 2 14. Assuming that the intermediate cash flows are reinvested at 10%, the Fvs / internal rates of return, are: (a) (i) $15,300 / 10% PV 9,500 N 5 I/Y 10 FV $15,300 Internal rate of return = 10% (ii) $14,717 / 4.3785 for 6 mo., 8.95% EAR FV (yr 5) = FVA 375 (10, 5%) + 10,000 = 4,717 + 10,000 = $14,717 FV = 14,717 PV = -9,500 N = 10 Internal rate of return = 4.3785% (for 6 months, EAR = 8.95%) (iii) $15,553 / 10.36% FV (yr5) = FV (200) + FV (400) + FV (800) + FV (1600) + FV (2,500 + 9,500) = 292.82 + 532.40 + 968 + 1,760 + 12,000 = $15,553 FV = 15,553 PV = -9,500 N = 5 Internal rate of return = 10.36% Based on the future values shown above, choose (iii).
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(b) The risk of the investment should be considered. (iii) has the highest risk and (i) has the lowest. Other factors might include differential taxes on the different investments, and marketability of the investments. Chapter 14
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This note was uploaded on 10/14/2011 for the course ADMS 3541 taught by Professor Staff during the Winter '10 term at York University.

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Week 9 Solutions - Week 9 Solutions Chapter 2 14. Assuming...

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