Question

A bond is currently selling for $1,300 and pays $65fyear (on an anmual basis) for 10 years. What is the IRR of the bond? (Note that this is the same as wking the bond's YTM.) 11-3 Internal Rate of Return- Part 1 Calculate the IRR of the following project Cash Flow 1000 200 300 Time Period Double-click to hide white space 500 300 2000 11-4 Multiple Internal Rates of Return Why might a financial analyst use the NPV method for making project decisions instead of the 11-5 Reinvestment Rate Assumption Explain the reinvestment rate assumption in the context of a project's cash flows over time. 11-6 Modified Internal Rate of Return (MIRR) Calculate the MIRR of the cash flows of the project below. Assume both the finance rate and IRR method the reinvestment rate are 5% Time Period Cash Flow +100 20 80 90 11-7 NPV Profiles Part 1 When we create NPV proiles, what variable is on the y-axis and what variable is on the x-axis? 11-7 NPV Proliles - Part 2 In reference to this video, suppose the firm's WACC exceeds the IRR for both projects Land s if the projects are mutually exclusive, whech project should the firm invest in? What if the peojects are nos mutually exclusive, then which projectis) should the tirm invest an (Hit: the both

Answer 1

As per rules I am answering the first 4 subparts of the question

11-3 YTM of bond = 2.99%

Part 1: IRR = 36.99%

11-4: There might be a situation when the IRR of a project is higher but the dollar value of its NPV is lower. This may be due to lesser investment in the project. The project may be a low scale project yielding high IRR. The firm may have an option to invest in a larger scale project with lower IRR but which yields high dollar value of NPV. In this case the NPV method will give a higher return to the firm.

11-5: The IRR method assumes that the cash flows from the project are reinvested at the IRR. The MIRR method assumes that the cash flows are reinvested at the WACC of the business.

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