Question

9. m u me Duiger has an opportunity cost of 15%. (NPV & IRR) Two projects, Alpha and Beta have free cash flows listed below. The firm has a cost of capital of 15%. Calculate the NPV and IRR of Alpha and Beta and determine if these independent projects should be selected: Alpha Beta Year 0 1 -$25,000 $55,000 Year 1 $5,000 $10,000 Year 2 $5,000 $10,000 $5,000 $10,000 Year 4 $5,000 $10,000 Year 5 $5,000 $10,000 Year 6 $5,000 $10,000 Year 3

please show all work in excel if possible.

Answer 1

year 0 cost of capital 15% UwN project alpha cash flow PV of Cashflow ($25,000) $5,000 $4,347.83 $5,000 $3,780.72 $5,000 $3,287.58 $5,000 $2,858.77 $5,000 $2,485.88 $5,000 $2,161.64 project beta cash flow PV of Cash flow 0 ($55,000) 1 $10,000 $8,695.65 2 $10,000 $7,561.44 3 $10,000 $6,575.16 4 $10,000 $5,717.53 5 $10,000 $4,971.77 6 $10,000 $4,323.28 Total $18,922.41 Total $37,844.83 NPV= Total PV of CF - initia investment alpha beta IRR 5% 3% NPV of alpha = $18922.41 - $25000 = $6077.59 NPV of beta= $37844.83-$55000 = -17155.17

following formula used in excel

PV of cash flow = =pv(rate,nper,pmt,fv,type)

IRR = =irr(values)

NPV = total pv of cash flow - initial investment

Both project alpha and beta should reject because both have negative NPV and IRR is lower then cost of capital .