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, QUESTION 1
Option 1 Correct
IRR: The compounded interest rate which, when used to discount the cash flows, will yield a present value
equal to the initial investment.
Accept projects with IRR greater then the cost of capital.
Using Financial Calculator
CFo = - 500 000
CF1 = 75 000
CF2 = 190 000
CF3 = 40 000
CF4 = 150 000
CF5 = 180 000
Compt IRR = 7.78%
QUESTION 2
Option 1 Correct
Given the NPV, PI and IRR we need to determine if we want to invest in Investment X or Y.
Criteria Investment X Investment Y
NPV R44 000 > 0 Accept −22 000 < 0 Decline
PI 1,945 > 1 Accept 0,071 < 1 Decline
IRR 16,00 > 12,00 Accept 8,04 < 12,00 Decline
We accept Investment X as the NPV is positive, the PI is greater than 1 and the IRR is greater than
the cost of capital.
, QUESTION 1
Option 1 Correct
IRR: The compounded interest rate which, when used to discount the cash flows, will yield a present value
equal to the initial investment.
Accept projects with IRR greater then the cost of capital.
Using Financial Calculator
CFo = - 500 000
CF1 = 75 000
CF2 = 190 000
CF3 = 40 000
CF4 = 150 000
CF5 = 180 000
Compt IRR = 7.78%
QUESTION 2
Option 1 Correct
Given the NPV, PI and IRR we need to determine if we want to invest in Investment X or Y.
Criteria Investment X Investment Y
NPV R44 000 > 0 Accept −22 000 < 0 Decline
PI 1,945 > 1 Accept 0,071 < 1 Decline
IRR 16,00 > 12,00 Accept 8,04 < 12,00 Decline
We accept Investment X as the NPV is positive, the PI is greater than 1 and the IRR is greater than
the cost of capital.
