In: Finance
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
Year Project A Project B
1 $ 6,000,000 $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 $
What are the two projects' IRRs at these same costs of capital? Round your answers to two decimal places.
Project A % Project B %
A) | |||||
Year | Project A | Project B | PV @ 5% | PV Project A | PV Project B |
0 | -$23,000,000.00 | -$23,000,000.00 | 1.0000 | -$23,000,000.00 | -$23,000,000.00 |
1 | $6,000,000.00 | $20,000,000.00 | 0.9524 | $5,714,285.71 | $19,047,619.05 |
2 | $10,000,000.00 | $10,000,000.00 | 0.9070 | $9,070,294.78 | $9,070,294.78 |
3 | $20,000,000.00 | $8,000,000.00 | 0.8638 | $17,276,751.97 | $6,910,700.79 |
IRR | NPV | $9,061,332 | $12,028,615 | ||
B) | |||||
Year | Project A | Project B | PV @ 10% | PV Project A | PV Project B |
0 | -$23,000,000.00 | -$23,000,000.00 | 1.0000 | -$23,000,000.00 | -$23,000,000.00 |
1 | $6,000,000.00 | $20,000,000.00 | 0.9091 | $5,454,545.45 | $18,181,818.18 |
2 | $10,000,000.00 | $10,000,000.00 | 0.8264 | $8,264,462.81 | $8,264,462.81 |
3 | $20,000,000.00 | $8,000,000.00 | 0.7513 | $15,026,296.02 | $6,010,518.41 |
IRR | NPV | $5,745,304 | $9,456,799 | ||
C) | |||||
Year | Project A | Project B | PV @ 15% | PV Project A | PV Project B |
0 | -$23,000,000.00 | -$23,000,000.00 | 1.0000 | -$23,000,000.00 | -$23,000,000.00 |
1 | $6,000,000.00 | $20,000,000.00 | 0.8696 | $5,217,391.30 | $17,391,304.35 |
2 | $10,000,000.00 | $10,000,000.00 | 0.7561 | $7,561,436.67 | $7,561,436.67 |
3 | $20,000,000.00 | $8,000,000.00 | 0.6575 | $13,150,324.65 | $5,260,129.86 |
IRR | NPV | $2,929,153 | $7,212,871 | ||
D) | |||||
Year | Project A | Project B | |||
0 | -$23,000,000.00 | -$23,000,000.00 | |||
1 | $6,000,000.00 | $20,000,000.00 | |||
2 | $10,000,000.00 | $10,000,000.00 | |||
3 | $20,000,000.00 | $8,000,000.00 | |||
IRR | 21.18% | 37.15% | |||