Question

Matterhorn Mountain Gear is evaluating two projects with the following cash flows:

year	project x	project y
0	-319,400	-299,050
1	146,100	137,300
2	163,600	154,500
3	128,700	120,250

What interest rate will make the NPV for the projects equal?

a)14.22%

b)18.31%

c)12.64%

d).26%

e)18.05%

Answer 1

Ans a) 14.22%

PROJECT X
Year	Project Cash Flows (i)	DF@ 14.22%	DF@ 14.22% (ii)	PV of Project A ( (i) * (ii) )
0	-319400	1	1	(3,19,400.00)
1	146100	1/((1+14.22%)^1)	0.876	1,27,911.05
2	163600	1/((1+14.22%)^2)	0.767	1,25,400.42
3	128700	1/((1+14.22%)^3)	0.671	86,367.84
		NPV		20,279.31
PROJECT Y
Year	Project Cash Flows (i)	DF@ 14.22%	DF@ 14.22% (ii)	PV of Project A ( (i) * (ii) )
0	-299050	1	1	(2,99,050.00)
1	137300	1/((1+14.22%)^1)	0.876	1,20,206.62
2	154500	1/((1+14.22%)^2)	0.767	1,18,425.21
3	120250	1/((1+14.22%)^3)	0.671	80,697.23
		NPV		20,279.31