Question

The firm LURX is considering the following investment projects. We know that Fisher rate for A
and Bis 30.77 %.
Project
Co
C1
C2
A
|-3.000
4.500
B
-3.000
3.200
12?
C
-3.000
2.500
2.500
*In project B there is a cash flow in the second year but the value is unknown
a) Which project would be chosen by LURX if they use the NPV criteria with a discount rate
equals to 10%? Include the details of the calculations that support your answer. (25 points)
b) Calculate which project would be chosen if they use the IRR as a criteria. Consider all
possible values of the discount rate between 0% and 70%. Draw the three IRR curves (one for
each project) and explain your results (25 points)​

Answer 1

Answer:

In project B there is a cash flow in the second year but the value is unknown

a) Which project would be chosen by LURX if they use the NPV criteria with a discount rate

equals to 10%? Include the details of the calculations that support your answer. (25 points)

b) Calculate which project would be chosen if they use the IRR as a criteria. Consider all

possible values of the discount rate between 0% and 70%. Draw the three IRR curves (one for

each project) and explain your results (25 points)