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Question Help * P 8-28 (similar to) You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): Year 0 -$48 -$99 Year 1 $25 S20 Year 2 $20 $42 Year 3 $18 $49 Year 4 $15 $62 Project a. What are the IRRs of the two projects? b. If your discount rate is 5.3%, what are the NPVs of the two projects? c. Why do IRR and NPV rank the two projects differently?
Question 2
Question Help * P 8-31 (similar to) You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,500 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 6.7%, what should you do? Year 1 -$2,200 Year 2 Year 3 $2,200 Year 4 Year 5 Year 0 2,200 2,200 2,200 0.700
Question 3
Question Help P8-36 (slmilar to) Fabulous Fabricators needs to decide how to allocate space in its production facility this year, It is considering the following contracts: NPV $2.01 million $0.95 million S1.46 million Use of Facility 100% 51% 49% Contract a. What are the profitability indexes of the projects? b. What should Fabulous Fabricators do?
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Answer #1

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xfIRR(B23:827) Cash flows Present value 21 | Year | Project A | Project B | PVIF@5.3% Project A | Project B 1.000 $ (48.00)$ (99.00 0.950 $ 23.74$ 18.99 18.04 $ 37.88 15.42 41.97 12.20 50.43 23 0 1 2 3 $ 18 $ 4 20 42 49 62 25 20 0.856 $ 0.813 $ 27 28 291RR | 25.2% 22.3% 30 31 Net present value 32 33 NPV is measuring value creation. 34 IRR is measuring return on investment $ 21.40$50.27

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