Question

In: Finance

The cash flows for three independent projects are found​ below:   Year 0 ​ (Initial investment) ​$(70,000​)...

The cash flows for three independent projects are found​ below:  

Year 0 ​ (Initial investment)

​$(70,000​)

​$(110,000​)

​$(420,000​)

Year 1

​$11,000

​$28,000

​$220,000

Year 2

17,000

28,000

220,000

Year 3

21,000

28,000

220,000

Year 4

26,000

28,000

Year 5

33,000

28,000

.

a. Calculate the IRR for each of the projects.

b. If the discount rate for all three projects is 13 percent​, which project or projects would you want to​ undertake?

c. What is the net present value of each of the projects where the appropriate discount rate is 13 percent​?

Solutions

Expert Solution

Year 0               (70,000)            (110,000)            (420,000)
Year 1                 11,000                 28,000               220,000
Year 2                 17,000                 28,000               220,000
Year 3                 21,000                 28,000               220,000
Year 4                 26,000                 28,000                          -  
Year 5                 33,000                 28,000                          -  
a. IRR 13.72% 8.62% 26.51%
c. NPV             1,459.43         (11,517.52)           99,453.57

b. If the discount rate is 13% then you should undertake the 1st and 3rd project since its IRR is greater than 13%

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