Question

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 6,000,000

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 %

Answer 1

Answer:

Workings:

As calculated above:

Answer 1:

Assuming the cost of capital is 5%

NPV Project A = $ 8,108,952

NPV Project B = $10,300,939

Answer 2:

Assuming the cost of capital is 10%

NPV Project A = $4,836,213.

NPV Project B = $7,954,170

Answer 3:

Assuming the cost of capital is 15%

NPV Project A = $2,059,587

NPV Project B = $5,897,838

Answer 4:

IRR Project A = 19.29%

IRR Project B = 33.95%