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Chapter 11b
1.
Shopaholic Inc. is considering a project that has the following cash flows:
•
Time 0: ($70)
•
Time 1: $25
•
Time 2:$35
•
Time 3: $45
What is this project’s IRR?
2.
You’re considering investing in common stock with the price of $50.
It will pay dividends of
$15, $30, and $15 over the next three years, then the company will liquidate and the stock will be
worth nothing.
What is this stock’s IRR?
3.
You are going to start a lemonade stand that will give the following CF’s over the next 3 years
(after which you will close the business and receive no more cash flows):
•
Year 1: $10
•
Year 2: $15
•
Year 3: $30
This lemonade stand will require a $45 initial outlay at Time 0.
What is the lemonade stand’s
IRR?
4.
Quiltoe’s Inc. is considering a project that will have the following cash flows:
•
IO: ($15,000)
•
Year 1: 350
•
Year
2: 700
•
Year 3 : 1,400
•
Year 4: 2,800
•
Year 5: 5,600
•
Year 6: 11,200
•
Year 7: 22,400
Quiltoe’s has a discount rate of 11%.
What is this project’s NPV?
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View Full Document5.
You are considering buying common stock that will pay you dividends of $6.40, $12.10, $18.50,
$20.10, $23.05, and $25.
Your hurdle rate is 9% and the stock costs $40.
What is the NPV of
investing in this stock?
6.
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 Fall '11
 JimBrau
 Finance, Investing

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