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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?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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