Question

I ONLY NEED THE LAST PART ANSWERED

NPV

Your division is considering two investment projects, each of which requires an up-front expenditure of $23 million. You estimate that the investments will produce the following net cash flows:

Year	Project A	Project B
1	$  5,000,000	$20,000,000
2	10,000,000	10,000,000
3	20,000,000	8,000,000

What are the two projects' net present values, assuming the cost of capital is 5%? Round your answers to the nearest dollar.

Project A $

Project B $

What are the two projects' net present values, assuming the cost of capital is 10%? Round your answers to the nearest dollar.

Project A $

Project B $

What are the two projects' net present values, assuming the cost of capital is 15%? Round your answers to the nearest dollar.

Project A $

Project B $

***** THIS QUESTION:::: What are the two projects' IRRs at these same costs of capital? Round your answers to two decimal places.

Project A     %

Project B     %

Answer 1

To find the IRR of Project A

Annuity of project A = ( $  5,000,000 + $ 10,000,000 + $ 20,000,000) 3

Annuity of project A = 11,666,666.67

Payback period = $ 23,000,000 11,666,666.67

Payback period = 1.97

From the present value interest factor of annuity table, find the interest rate close to 1.97 for n = 3 years

r= 24%

Find NPV at r = 24%

At 24% , NPV is negative

Find NPV at 20%

NPV at 20% = -$ 314,814.815

NPV at 19% = 131,645.1445

IRR = 19% + [ 23,000,00 - 22,685,185.19 ] [ 23,131,645.14 - 22,685,185.19 ]

IRR project A = 19.71%

___________________________________________________________________________

To find the IRR of Project B

Annuity of project B = ( $  20,000,000 + $ 10,000,000 + $ 8,000,000) 3

Annuity of project B = $ 12,666,666.67

Payback period project B = $ 23,000,000 $ 12,666,666.67

Payback period project B = 1.82 years

From the present value interest factor of annuity table, find the interest rate close to 1.82 for n = 3 years

r > 30%

By trial and error, find the NPV at 38%

Find NPV at 38%

NPV at 38% = - $ 212,192.056

find NPV at 37%

NPV at 37% = $ 37,677.05

IRR = 37% + [ $ 23,000,000 - 22787807.94 ] [ 23,037,677.05 - 22,787,807.94 ]

IRR of project B = 37.85%