sandeep641 Posted February 21, 2009 Share Posted February 21, 2009 1) One share of Festival Cruise Line stock initially sells for $25.Each year, the company pays dividends of $0. 75. After holding the stock for three years, the investor sells it for $30.What is the IRR for this investment? 2) New Tech has a new product that has incurred R&D expenses of $3, 75,000.An additional $5, 00,000 is needed if the product is to proceed. Initial sales will be $50,000 per month and they will increase by $5000 per month. The market is moving fast, and the product will be closed out in 2 years. What is the new product’s IRR for deciding whether to proceed? 3) A car dealer is offering a $1500 rebate or financing at 2% APR over 36 months. The price of the car is $17,000.A minimum down payment of 20% is required. What is the effective interest rate for the loan? Quote Link to comment Share on other sites More sharing options...
hvdgl Posted February 21, 2009 Share Posted February 21, 2009 1. (30sell-25buy) + 3yr(0.75div) = 7.25 ->7.25/25=29%? 2. typo? 3. is this question complete? looks like interest rate is 0.02 (or 0.02/36 months) Quote Link to comment Share on other sites More sharing options...
nomathskills Posted February 22, 2009 Share Posted February 22, 2009 29% is a rather large internal rate of return. The present value of the divs depending on what the question refers as (dividends each year-when during the year-each year?). The equation of value should be; 25= present value of the dividends (which we cannot solve for since exact times are needed-they could be at the end of each year, beginning of each year, or any time during the year) + pv of 30. 25=pv(dividends) + 30(1+i)^-3 Quote Link to comment Share on other sites More sharing options...
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