In: Finance
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?
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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