Question

Comparing Investment Criteria. Consider the following two mutually exclusive design projects using a required return of 18%:

Year	Cash flow (A)	Cash flow (B)
0	-22000	-2200
1	500	1100
2	4000	900
3	10000	1100
4	42000	4000

1. Find the NPV for both projects a and b. (round to second decimal)

2. Find the IRR for both projects a and b. (round to secound decimal)

3. Find the PI for both projects A and B. (round to second decimal)

4. To maximize shareholder's wealth, I would chose project____?

* using a financial calculator please show and explain work.

Thank you

Answer 1

Enter the keystrokes in Cash flow section of caclculator:

Year	A	B
CF0	$ -22,000.00	$ -2,200.00
CF1	$         500.00	$   1,100.00
CF2	$     4,000.00	$      900.00
CF3	$   10,000.00	$   1,100.00
CF4	$   42,000.00	$   4,000.00
IRR	30.01%	51.33%
NPV	$   34,500.18	$   4,900.18

CPT IRR for IRR calcculations
CPT NPV
Enter rate = 18%

Year	A	B
CF0	$ -22,000.00	$ -2,200.00
CF1	$         500.00	$   1,100.00
CF2	$     4,000.00	$      900.00
CF3	$   10,000.00	$   1,100.00
CF4	$   42,000.00	$   4,000.00
IRR	30.01%	51.33%
NPV	$   34,500.18	$   4,900.18
PI	2.57	3.23

To maximize shareholder wealth choose A as it has more NPV