# Quantitative Methods - Quantitative Methods Section 1

>>>>>>>>Quantitative Methods Section 1

• Option : B
• Explanation : Enter the given cash flows in a financial calculator: CF0 = -18 million, CF1 = 5 million, CF2 = 5 million

• Option : A
• Explanation : Enter the given cash flows and discount rate in a financial calculator to calculate NPV: C0= -25,000, CF1= 5000, CF2= 5000, CF3= 5,000, CF4= 15000, i = 5.5%, CPT NPV. NPV = \$597.92.

 Time Cash Flow (\$) 0 (180,000) 1 100,000 2 200,000 3 250,000

• Option : C
• Explanation : Opportunity cost of capital for the investment = risk free rate + the market risk premium * beta Opportunity cost = 3% + (6% x 1.2) = 10.2%. The NPV equals the present value (at t = 0) of the future cash flows discounte at the opportunity cost of capital (10.2%) minus the initial investment, or \$123,725. Using a financial calculator, solve for NPV. CF0= –180,000, CF1= 100,000, CF2= 200,000, CF3= 250,000, %i = 10.2, CPT NPV = 262,241.84 ≈ 262,000.

• Option : B
• Explanation : Using a financial calculator, compute IRR:CF0 = -5,000,000, CF1 = 3,000,000, CF2 = 3,500,000; CPT IRR = 18.88% ≈ 19%.

 Year 0 1 2 3 4 5 6 Cash flow (€) -50,000 35,000 25,000 10,000 2,000 2,000 3,000

The IRR of the project is closest to:

• Option : A
• Explanation : Using a financial calculator, compute IRR: CF0 = –50,000, CF1 = 35,000, CF2 = 25,000, CF3 = 10,000, CF4 = 2,000, CF5 = 2,000, and CF6 = 3,000, CPT IRR. The IRR is 27.05%.