F305 Intermediate Corporate Finance
Assignment #4
(due: 2/26 in class)
Professor Jan Schneemeier
1.
Consider two projects with the following (after–tax) cash flows. Project A:
CF
1
= 50
,
CF
2
= 55
,
CF
3
= 85
. Project B:
CF
1
= 140
. Both projects require an initial investment of
100
. Assume the cost of capital
for both projects is
r
= 5%
.
(a)
Compute
NPV
and
IRR
for project A.
= $70.93, 36.2%
(b)Compute
NPV
and
IRR
for project B.
=
$33.33, 40%
(c)
Assume you replicate project B twice, i.e. reinvest 100 in t = 1 and t = 2. Compute the NPV and
IRR
of the replicated project.
