In: Finance
The following projects are under consideration by Smith's Food Markets, Inc. Smith's requires a 14% rate of return on projects of this nature.
Project A: CF0 = -$90,000; CF1-CF6 = +$25,000
Project B: CF0 = -$200,000; CF1-CF3 = +$90,000
What is the NPV of project B?
Group of answer choices
$7,217
$70,000
$8,947
$16,164
$60,000
What is the IRR of project B?
Group of answer choices
22.50%
27.78%
16.88%
45.00%
16.65%
Ans 1) NPV of project B = $ 8947
Ans 2) IRR of project B = 16.65%
Year | Project Cash Flows (i) | DF@ 14% | DF@ 14% (ii) | PV of Project ( (i) * (ii) ) | DF@ 24% (iii) | PV of Project ( (i) * (iii) ) |
0 | -200000 | 1 | 1 | (2,00,000) | 1 | (2,00,000) |
1 | 90000 | 1/((1+14%)^1) | 0.877193 | 78,947 | 0.806 | 72,581 |
2 | 90000 | 1/((1+14%)^2) | 0.769468 | 69,252 | 0.650 | 58,533 |
3 | 90000 | 1/((1+14%)^3) | 0.674972 | 60,747 | 0.524 | 47,204 |
NPV | 8,947 | NPV | (21,683) | |||
IRR = | Ra + NPVa / (NPVa - NPVb) * (Rb - Ra) | |||||
14% + 8947 / (8947 + 21683)*10% | ||||||
16.65% |