In: Finance
An investor has identified the following two mutually exclusive projects: |
Year | Cash Flow (A) | Cash Flow (B) |
0 | –$39,000 | –$39,000 |
1 | 19,200 | 5,800 |
2 | 14,700 | 12,300 |
3 | 12,200 | 18,800 |
4 | 9,200 | 22,800 |
|
Required: |
(a) | What is the IRR for Project A? |
|
(b) | What is the IRR for Project B? |
|
(c) | If the required return is 9 percent, what is the NPV for Project A? |
(d) | If the required return is 9 percent, what is the NPV for Project B? |
(e) | At what discount rate would the company be indifferent between these two projects? |
a.
IRR of both project is calculated in excel and screen shot provided below:
Internal rate of return of project A is 18.00% and Internal rate of return of project B is 15.77%.
c.
NPV of both project is calculated in excel and screen shot provided below:
Net Present value of project A is $6,925.53 and Net Present value of project B is $7,342.91.
e.
The discount rate at which both project is indifferent is called crossover rate. So crossover rate for both project is calculated in excel and screen shot provided below:
the crossover rate is not possible it must be at infinity.