Question

4 points (NB A financial calculator must be used to answer this question) A business venture requires an initial investment of R150 000 and has an expected quarterly cash flow as follows: Quarters 1 3 4 5 Cash 20 000 30 000 50 000 72 500 Flow An investor will consider this option if she can get a return of 14% p.a. compounded quarterly. Which one of the following alternatives is FALSE? (Answers are rounded to two decimal places where necessary) NPV = -150 000 + 20 000(1, 035)$^{-1}$ + 30 000(1, 035)$^{-3}$ + 50 000(1, 035)$^{-4}$ + 72 500(1, 035)$^{-5}$ IRR = 14,75% p.a. effective. NPV = R997,12 If Newton's method is used to calculate the IRR, then the iterative formula that must be used is $i_{n+1} = i_n - \frac{-150000 + 20000(1 + i_n)^{-1} + 30000(1 + i_n)^{-3} + 50000(1 + i_n)^{-4} + 72500(1 + i_n)^{-5}}{-20000(1 + i_n)^{-2} - 90000(1 + i_n)^{-4} - 200000(1 + i_n)^{-5} - 362500(1 + i_n)^{-6}}$ 0 = -150 000 + 20 000(1, 0367...) + 30 000(1, 0367...) + 50 000(1, 0367...) + 72 500(1, 0367...)

          4 points
(NB A financial calculator must be used to answer this question)
A business venture requires an initial investment of R150 000 and has an expected quarterly cash flow as follows:
Quarters 1
3
4
5
Cash
20 000
30 000
50 000
72 500
Flow
An investor will consider this option if she can get a return of 14% p.a. compounded quarterly. Which one of the following alternatives is FALSE?
(Answers are rounded to two decimal places where necessary)
NPV = -150 000 + 20 000(1, 035)$^{-1}$ + 30 000(1, 035)$^{-3}$ + 50 000(1, 035)$^{-4}$ + 72 500(1, 035)$^{-5}$
IRR = 14,75% p.a. effective.
NPV = R997,12
If Newton's method is used to calculate the IRR, then the iterative formula that must be used is
$i_{n+1} = i_n - \frac{-150000 + 20000(1 + i_n)^{-1} + 30000(1 + i_n)^{-3} + 50000(1 + i_n)^{-4} + 72500(1 + i_n)^{-5}}{-20000(1 + i_n)^{-2} - 90000(1 + i_n)^{-4} - 200000(1 + i_n)^{-5} - 362500(1 + i_n)^{-6}}$
0 = -150 000 + 20 000(1, 0367...) + 30 000(1, 0367...) + 50 000(1, 0367...) + 72 500(1, 0367...)

4 points
(NB A financial calculator must be used to answer this question)
A business venture requires an initial investment of R150 000 and has an expected quarterly cash flow as follows:
Quarters 1
3
4
5
Cash
20 000
30 000
50 000
72 500
Flow
An investor will consider this option if she can get a return of 14% p.a. compounded quarterly. Which one of the following alternatives is FALSE?
(Answers are rounded to two decimal places where necessary)
NPV = -150 000 + 20 000(1, 035)^-1 + 30 000(1, 035)^-3 + 50 000(1, 035)^-4 + 72 500(1, 035)^-5
IRR = 14,75% p.a. effective.
NPV = R997,12
If Newton's method is used to calculate the IRR, then the iterative formula that must be used is
in+1 = in - (-150000 + 20000(1 + in)^-1 + 30000(1 + in)^-3 + 50000(1 + in)^-4 + 72500(1 + in)^-5)/(-20000(1 + in)^-2 - 90000(1 + in)^-4 - 200000(1 + in)^-5 - 362500(1 + in)^-6)
0 = -150 000 + 20 000(1, 0367...) + 30 000(1, 0367...) + 50 000(1, 0367...) + 72 500(1, 0367...)

Added by Celia M.

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