Question

10. Calculating IRR [LO5] What is the IRR of the following set of cash flower Year WN - O Cash Flow -$15,400 7,300 9,100 5,900 11. Calculating NPV [LO1] For the cash flows in the previous problem, what is the NPV at a discount rate of zero percent? What if the discount rate is 10 percent? If it is 20 percent? If it is 30 percent? 12. NPV versus IRR [LO1, 5] Bruin, Inc., has identified the following two mutually exclusive projects: Year AWN-o Cash Flow (A) -$37,500 17,300 16,200 13,800 7,600 Cash Flow (B) -$37,500 5,700 12,900 16,300 27,500 a. What is the IRR for each of these projects? Using the IRR decision to project should the company accept? Is this decision necessarily correct b. If the required return is 11 percent, what is the NPV for each of these Which project will the company choose if it applies the NPV decision decision rule, which of these projects?

Answer 1

10. IRR = 21.77%
11. NPV at rate 0, 10, 20% = 6900, 3189.78, 417.13

10. IRR is the Rate at which NPU=0 NPU- Present value of Inflow - Present value of oulflow 7300 + I+IPR 9100 (I+IRR) 2 (AIRPiet 5900 (1+1Rp) 3 's, IRR = 21.77% NPV NPV NAV NPV = NPV 0%. 7300 I+NPurate +300 + 2100 6900 9100 + NPUR) + 5900 - 15400 10%. 3 189.78 (ANPUR 20% 417. 129