Discussion 4

1. IRR method

(1) Define the term internal rate of return(IRR). What is each project's IRR?

(2) How is the IRR on a project related to the YTM on a bond?

(3)According to IRR, which project(s) should be accepted if they are independent? Mutually exclusive?

2. Suppose the firm estimates its WACC to be 10%. 

(1) Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? Explain.

(2) Would the NPVs change if the WACC changed? Explain.