Question

In: Finance

Year Project A Project B 0 -425,000 -500,000 1 200,000 280,000 2 210,000 220,000 3 175,000...

Year

Project A

Project B

0

-425,000

-500,000

1

200,000

280,000

2

210,000

220,000

3

175,000

180,000

4

175,000

180,000

5

175,000

180,000
  1. Use the IRR approach to determine which project to choose.
  2. Graph the NPV profiles for each project.
  3. At what rate will the two projects have the same NPV?

Solutions

Expert Solution

a) Project A has higher IRR of 35.16% based on the NPV of cash flows. Hence Project A has to be selected.

Year 0 1 2 3 4 5
Project A        (425,000)             200,000         210,000        175,000        175,000        175,000
Project B        (500,000)             280,000         220,000        180,000        180,000        180,000
Project A 35.16%
Project B 34.46%

b) Applying the IRR formula, NPV is same at $67,498 at IRR rate of 27.09%

jeff jeffy answered 7 months ago
Next > < Previous

Related Solutions

A firm has projected free cash flows of $175,000 for Year 1, $200,000 for Year 2,...
A firm has projected free cash flows of $175,000 for Year 1, $200,000 for Year 2, and 225,000 for Year 3, $250,000 for Year 4, and 300,000 for Year 5. The projected terminal value at the end of Year 5 is $600,000. The firm's Weighted Average cost of Capital (WACC) is 10.5%. Microsoft® Excel® document to determine the Discounted Cash Flow (DCF) value of the firm based on the information provided above. Show calculations.
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000...
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000 35,000 4 55,000 25,000 5 85,000 20,000 At what WACC would there be a break-even between the two projects? 7.23% 8.48% 7.57% 7.89% What is the NPV for Project A assuming the WACC is 10%? $5,653.94 $10,522.64 $6,219.33 $11,574.90 What is the IRR for Project B? 11.2% 13.9% 11.6% 10.9% What is the discounted payback period of Project A assuming the WACC is 10%?...
Year Project A Project B 0 −$330 −$330 1 160 230 2 160 230 3 160...
Year Project A Project B 0 −$330 −$330 1 160 230 2 160 230 3 160 230 4 160 a. If the opportunity cost of capital is 12%, calculate NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project NPV A $ 485.98 B 552.42 b. Which of these projects is worth pursuing if you have enough funds and they are not mutually exclusive? Project A Project B Both
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000...
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000 35,000 4 55,000 25,000 5 85,000 20,000 At what WACC would there be a break-even between the two projects? 7.23% 8.48% 7.57% 7.89% What is the NPV for Project A assuming the WACC is 10%? $5,653.94 $10,522.64 $6,219.33 $11,574.90 What is the IRR for Project B? 11.2% 13.9% 11.6% 10.9% What is the discounted payback period of Project A assuming the WACC is 10%?...
Consider cash flows for projects A and B Year: 0, 1, 2, 3, 4, 5 Project...
Consider cash flows for projects A and B Year: 0, 1, 2, 3, 4, 5 Project A: -$1000, 375, 375, 375, 375,-100 Project B: -$1000, 900, 700, 500, -200, 200 The cost of capital for both projects is 10% 1. Find the NPV and MIRR of projects A and B. If project A and B are mutually exclusive. 2. Find the crossover rate for projects A and B. 3. What is the profitability index for projects A and B? How...
Project Wind Power Year 0 Year 1 Year 2 Year 3 Costs $6,000,000 $4,000,000 $0 $0...
Project Wind Power Year 0 Year 1 Year 2 Year 3 Costs $6,000,000 $4,000,000 $0 $0 Benefits $18,000,000 $15,000,000 $12,000,000 $12,000,000 Project Hydroelectric power Year 0 Year 1 Year 2 Year 3 Costs $4,000,000 $2,000,000 $1,000,000 $0 Benefits $10,000,000 $14,000,000 $15,000,000 $16,000,000 If the interest rate is 3%, which project would you choose and why? Show your work using excel (15 points) If the interest rate is 15%, which project would you choose and why? Show your work using excel...
Year Project(A) Project (B) 0 -$30,000 -$30,000 1 13,000 5,000 2 11,000 5,000 3 9,000 5,000...
Year Project(A) Project (B) 0 -$30,000 -$30,000 1 13,000 5,000 2 11,000 5,000 3 9,000 5,000 4 7,000 5,000 5 0 5,000 6 7 8 9 10 0 0 0 0 0 5,000 5,000 5,000 5,000 5,000 The required rate of return is 10%. 3). What is the payback period for each of the projects? Which project should be accepted if the payback period method is applied? Assume that the target payback period is 4 years. Explain why. (4). What...
Discounted Cash Flow: Year (n) 0 1 2 3 4 Undiscounted cash flow -$600,000 $200,000 $200,000...
Discounted Cash Flow: Year (n) 0 1 2 3 4 Undiscounted cash flow -$600,000 $200,000 $200,000 $200,000 $200,000 DCF @ 11% ∑DCF @11% DCF @ 13% ∑DCF @13% DCF @ 15% ∑DCF @15% Notes: DCF = Discounted Cash Flow ∑DCF = Cumulative Discounted Cash Flow Refer to the following video on how to calculate IRR with Excel. Provide your completed spreadsheet in the space below. Alternatively, do the exercise in Excel and enter the values back into the table above....
Project Year 0 Year 1 Year 2 Year 3 Year 4 A    -$ 49 $ 25...
Project Year 0 Year 1 Year 2 Year 3 Year 4 A    -$ 49 $ 25 $ 22 $ 22 $ 15 B -$ 101 $ 19 $ 39 $ 51 $ 61 a. What are the IRRs of the two​ projects? b. If your discount rate is 4.8%​, what are the NPVs of the two​ projects? c. Why do IRR and NPV rank the two projects​ differently?
Year   Project A   Project B 0 –$200   –$200    1 80   100    2 80 100...
Year   Project A   Project B 0 –$200   –$200    1 80   100    2 80 100    3 80 100    4 80       a)   If the opportunity cost of capital is 10%, which of these projects is worth pursuing? Explain. b)   Suppose that you can choose only one of these projects. Which would you choose? The discount rate is still 10%. Justify your reasoning. c)   Which project would you choose if the opportunity cost of capital were 16%?...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT