Project A has an initial cash outflow of $250,000 and is expected to generate $100 thousand...
Project A has an initial cash outflow of $250,000 and is expected to generate $100 thousand a year for the next three years. Project B has an initial cash outflow of $300 thousand and is expected to generate $125 thousand a year for the next three years. Assume the discount rate is 8%.
Calculate the NPV and IRR for each project
Homework Answers
NPV of Project A =PV of Cash Flows -Initial Investment
=100000/(1+8%)+100000/(1+8%)^2+100000/(1+8%)^3-250000
7709.70
NPV of Project B =PV of Cash Flows -Initial Investment
=125000/(1+8%)+125000/(1+8%)^2+125000/(1+8%)^3-300000
=22137.12
IRR of Project A using financial calculator
N=3;PMT =100000;PV=-250000;CPT I/Y =9.70%
IRR =9.70%
IRR of Project B using financial calculator
N=3;PMT =125000;PV=-300000;CPT I/Y =12.04%
IRR =12.04%
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