I’ve got my first surprise with the reading 44 of corporate finance. In the practice problems page 31 (vol 4): - Question 4: An investment of $150000 is expected to generate an after tax cash flow of $100000 in one year and another $120000 in two years, discount rate is 10%. What is the IRR A- 28.39% B- 28.59% C- 28.79% The answer is C since there are only two cash flow at year 1 and 2. I don’t understand what is $1200000 in two year meant ? It should have one more cash flow in year 3 of $1200000, so that the answer is totally different. - Question 13 and 14, they relate to NPV profile which you must calculate the crossover rate and the rates that produce zero NPV for an unconventional cash flow. I don’t know in 90 seconds how can we find the answer?. Draw a diagram or somethings. Please some one who know the shortcut. Sincerely. Thank!
i get 28.785% with: -150,000 (0) / 100,000 (1) / 120,000 (2) So don’t think you need anything else. Regarding the crossover rate, this is normally tested by asking what the NPV would be if IRR and WACC were equal
To figure out the crossover rate of two CFs use CF1-CF2 and find the IRR of the resultant CF.