NPV
Your division is considering two investment projects, each of which requires an up-front expenditure of $19 million. You estimate that the investments will produce the following net cash flows:
Year | Project A | Project B |
1 | $ 5,000,000 | $20,000,000 |
2 | 10,000,000 | 10,000,000 |
3 | 20,000,000 | 6,000,000 |
a. NPV of Project A =PV of Cash Flows -Initial Investment
=5000000/(1+5%)+10000000/(1+5%)^2+20000000/(1+5%)^3-19000000=12108951.52
NPV of Project B =PV of Cash Flows -Initial Investment
=20000000/(1+5%)+10000000/(1+5%)^2+6000000/(1+5%)^3-19000000=14300939.42
NPV of Project A =PV of Cash Flows -Initial Investment
=5000000/(1+10%)+10000000/(1+10%)^2+20000000/(1+10%)^3-19000000=8836213.37
NPV of Project B =PV of Cash Flows -Initial Investment
=20000000/(1+10%)+10000000/(1+10%)^2+6000000/(1+10%)^3-19000000=11954169.80
NPV of Project A =PV of Cash Flows -Initial Investment
=5000000/(1+15%)+10000000/(1+15%)^2+20000000/(1+15%)^3-19000000=6059587.41
NPV of Project B =PV of Cash Flows -Initial Investment
=20000000/(1+15%)+10000000/(1+15%)^2+6000000/(1+15%)^3-19000000=9897838.42
b. Using Financial Calculator IRR of Project A
CF0=-19000000;CF1=5000000;CF2=10000000;CF3=20000000;CPT IRR
=29.60%
Using Financial Calculator IRR of Project B
CF0=-19000000;CF1=20000000;CF2=10000000;CF3=6000000;CPT IRR
=53.11%
NPV Your division is considering two investment projects, each of which requires an up-front expenditure of...
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