Question

Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for production systems projects,

Year			System 1			System 2
0			-$12,790			-$46,521
1			12,897			33,430
2			12,897			33,430
3			12,897			33,430

Compute the IRR for both production system 1 and production system 2. (Do not round intermediate calculations. Round answers to 2 decimal places, e.g. 15.25.)

IRR of system 1 is % and IRR of system 2 is %.

Which has the higher IRR?

Compute the NPV for both production system 1 and production system 2. (Do not round intermediate calculations. Round answers to 2 decimal places, e.g. 15.25 or 15.25%.)

NPV of system 1 is $ and NPV of system 2 $ .

Which production system has the higher NPV?

Compute the IRR on the following cash flow streams:

a. An initial investment of $24,570 followed by a single cash flow of $43,290 in year 6. (Round intermediate calculations to 4 decimal places, e.g. 1.2512 and final answer to 2 decimal places, e.g. 15.25%.)

IRR

%

b. An initial investment of $891,059 followed by a single cash flow of $1,395,600 in year 4. (Round intermediate calculations to 4 decimal places, e.g. 1.2512 and final answer to 2 decimal places, e.g. 15.25%.)

IRR

%

c. An initial investment of $2,350,718 followed by cash flows of $1,901,100 and $1,183,400 in years 2 and 4, respectively. (Round answer to 2 decimal places, e.g. 15.25%.)

Techno Corp. management is considering developing new computer software. The cost of development will be $675,000, and management expects the net cash flow from sale of the software to be $195,000 for each of the next six years. If the discount rate is 14 percent, what is the net present value of this project? (Round answer to 0 decimal places, e.g. 5,275.)

Management is considering developing new computer software. The cost of development will be $675,000, and management expects the net cash flow from sale of the software to be $195,000 for each of the next six years. If the discount rate is 14 percent, What is the IRR on this project? (Round answer to 3 decimal places,e.g. 15.221.)

mporia Mills management is evaluating two alternative heating systems. Costs and projected energy savings are given in the following table. The firm uses 10.42 percent to discount such project cash flows.

Year		System 100		System 200
0		$-1,547,400		$-1,406,000
1		245,810		877,000
2		421,630		565,500
3		513,340		458,400
4		887,700		342,500

What is the NPV of the systems? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round answers to 0 decimal places, e.g. 5,275.)

NPV of system 100 is		$
NPV of system 200 is		$

Which system should be chosen?

Answer 1

1)

1 2 3 5 A B с Cash flows Year Project A Project B А B 4 0 $ (12,790) $ (46,521) 1 $ 12,897 $ 33,430 6 2 $ 12,897 $ 33,430 7 3 $ 12,897 $ 33,430 8 9 IRR 84.88% 50.98% 10 =IRR(B4:37) =IRR(C4:07) 11 12 Net present value $ 19,856.11 $ 38,100.18 13 =NPV(9%,B5:37)+B4 =NPV(9%,C5:07)+C4 14 15 Project A has higher IRR 16 Project B has higher NPV

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