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Problems with the IRR method
Acme Oscillators is considering an investment project that has the following rather unusual cash flow pattern.
Year: 0 Cash Flow: $98
Year: 1 Cash Flow: -459
Year: 2 Cash Flow: 792
Year: 3 Cash Flow: -602.50
Year: 4 Cash Flow: 171.3
a. Calculate the? project's NPV at each of the following discount? rates: 0?%, 5?%, 10?%, 20?%, 30%?, 40?%, 50?%.
b. What do the calculations tell you about this? project's IRR? The IRR rule tells managers to invest if a? project's IRR is greater than the cost of capital. If Acme? Oscillators' cost of capital is 8%, should the company accept or reject this?investment?
c. Notice that this? project's greatest NPVs come at very high discount rates. Can you provide an intuitive explanation for that?pattern?
the real risk-free rate of interest is expected to remain constant at 3 for the foreseeable future. however inflation
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Fleury Security Limited (FSL) is projected to have earnings per share (EPS) of $3.50 next year, and the firm's dividends are 30% of earnings.
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