Question
In: Finance
An investor has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash...
| 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? |
Solutions
Expert Solution
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 $7,342.91.
e.
The discount rate at which both project is indifferent is called crossover rate. So crossover rate for both project is calculated in excel and screen shot provided below:
the crossover rate is not possible it must be at infinity.
jeff jeffy answered 2 years agoRelated Solutions
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0
?$
90,000
?$
90,000
1
42,000
22,000
2
33,000
30,000
3
26,000
35,000
4
21,000
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Requirement
1:
(a)
What is the IRR for each of these projects?
(Do not round intermediate
calculations. Enter your answer as a percentage
rounded to 2 decimal places (e.g.,
32.16).)
Internal rate
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Project A
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Project B
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(b)
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44,000
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