Question

Problem 10.32 a-b Management of Cullumber Measures, Inc., is evaluating two independent projects. The company uses a 11.30 percent discount rate for such projects. The costs and cash flows for the projects are shown in the following table. Project 1 Year Project 2 $8,285,775 $12,661,917 3,203,590 2,181,330 1 3,904,490 2 1,935,890 3 1,400,100 3,142,780 1,182,200 4,408,600 1,142,280 4,340,480 5 1,533,040 6 1,495,290 7 a. What are the IRRS for the projects? (Round final answer to 2 decimal places, e.g. 15.25%.) The IRR of Project 1 is %, and the IRR of Project 2 is %. b. Does the IRR criterion indicate a different decision than the NPV criterion? Yes u would like to Show Work for this question: Open Show Work No

Answer 1

Project 1 Nor 1142280 + 1400100 1533040 (1.1136 (182200 + + 320359o 10113 1935 890 - (11-13) + 113) 5 ! (1011304 - (i-113) 3 ( 82 85 775 14.95290 (1-113) 7 ' - 2278 33 7-23 + 1560 153.02 + 101548 5.12 1015485.12 + 77030 9.40 + 66 8800.75 + 806459.39 + 706739.36 - 82 8 5775 = $123189.87 Using financial calculator to calculate IRR. Cfo = - 8285775, CA = 3203590, Cf2 = 1935090,cf3 = 1400100 Cfy = 1102200, cfs = 1142200, Cfo = 1533040, CF7 = 1495290 IRR CPT = 11.05 % Answer -Pacject 2 Using financial calculator to calculate NPV and IRR. cfo = - 12661917 Cf = 2181330, Cf2 = 3904490, Cf3 = 3142780 cfy = 4408600, cfg = 4340480 NAV I=11.3% CPT NPV = $143533-22 IRR CPT = 11.71 % Answer Ye3 , IRR criteria indicate a different decision than npr. As per IRR Project I should be accepted. As per NPV - Project 2 should be accepted. Criteria