Math Problem Statement
A firm is considering two projects, A and B. Each project will last for 4 years. The projects are MUTUALLY EXCLUSIVE. The projected cash flows for each project are shown below:
Year01234
Project A
-20.00
9.00
8.00
6.00
4.00
Project B
-30.00
10.00
12.00
11.00
13.00
The cost of capital facing the firm is 9.00%.
What is the IRR of project A?
Solution
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Math Problem Analysis
Mathematical Concepts
Internal Rate of Return (IRR)
Discounted Cash Flow (DCF)
Net Present Value (NPV)
Formulas
NPV = Σ (Cash Flow at time t / (1 + r)^t) for t = 0 to n
IRR: NPV = 0, solve for r
Theorems
Time Value of Money
Suitable Grade Level
College level, Finance or Economics
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