Question

(Related to Checkpoint 11.1 and Checkpoint 11.4) (IRR and NPV calculation) The cash flows for three independent projects are found below: a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 17 percent, which project or projects would you want to undertake? c. What is the net present value of each of the projects where the appropriate discount rate is 17 percent? A Data Table - X a. The IRR of Project A is %. (Round to two decimal places.) The IRR of Project B is %. (Round to two decimal places.) The IRR of Project C is Year O (Initial investment) Year 1 Year 2 Year 3 Year 4 Year 5 %. (Round to two decimal places.) Project A $(55,000) $13,000 16,000 22,000 26,000 29,000 Project C $(460,000) $210,000 210,000 210,000 Project B $(95,000) $27,000 27,000 27,000 27,000 27,000 b. If the discount rate for all three projects is 17%, which project or projects would you want to undertake? (Select the best choice below.) O A. Project A and Project C OB. Project A, Project B, and Project C O C. None of the projects OD. Project A and Project B Print Done C. The net present value of Project A where the appropriate discount rate is 17% is $ . (Round to the nearest dollar.) The net present value of Project B where the appropriate discount rate is 17% is $ . (Round to the nearest dollar.) The net present value of Project C where the appropriate discount rate is 17% is $ . (Round to the nearest dollar.)

Answer 1

fic =IRR(B3:B8) B E F B9 A 1 Project A 2 year G H Project A 22.72% Project B 12.99% Project C 17.54% Cash flows pv@17% 0 $ (55,000.00) 11 $ 13,000.00 21 $ 16,000.00 3 $ 22,000.00 4 $ 26,000.00 5 $ 29,000.00 22.72%||NPV Present value 1.0000 $ (55,000.00) 0.8547 $ 11,111.11 0.7305 $ 11,688.22 0.6244 $ 13,736.15 0.5337 $ 13,874.90 0.4561 $ 13,227.22 $ 8,637.60 a IRR b Answer A c NPV $ 8,638 $ (8,618) $ 4,013 9 IRR 10 Project B 11 year 12 Cash flows pv@17% 0 $ (95,000.00) 11 $ 27,000.00 2 $ 27,000.00 3 $ 27,000.00 4 $ 27,000.00 5 $ 27,000.00 12.99% NPV Present value 1.0000 $ 95,000.00) 0.8547 $ 23,076.92 0.7305 $ 19,723.87 0.6244 $ 16,858.01 0.5337 $ 14,408.55 0.4561 $ 12,315.00 $ (8,617.65) 16 17 18 IRR 19 Project C 20 year Cash flows pv@17% 0$ (460,000.00) 1 $ 210,000.00 2 $ 210,000.00 3 $ 210,000.00 17.54% NPV Present value 1.0000 $ (460,000.00) 0.8547 $ 179,487.18 0.7305 $ 153,407.85 0.6244 $ 131,117.82 $ 4,012.84 24 IRR

Foc EIRR(B3:B8) pv@17% Cash flows -55000 13000 16000 22000 26000 29000 =IRR(B3:38) =C3/1.17 =C4/1.17 =C5/1.17 =C6/1.17 =C7/1.17 NPV Present value =B3*C3 =B4*04 =B5*C5 =B6*C6 =B7*C7 =B8*08 =SUM(D3:D8) pv@17% 1 Project A 2 year 30 41 52 63 74 85 9 IRR 10 Project B 11 year 12 0 13 1 14 2 15 3 16 4 17 5 18 IRR 19 Project C 20 year 21 0 22 1 23 2 Present value =B12*C12 =B13*C13 Cash flows -95000 27000 27000 27000 27000 27000 =IRR(B12:B17) =C12/1.17 =C13/1.17 =C14/1.17 C15/1.17 =C16/1.17 =B14*C14 =B15*C15 =B16*C16 =B17*C17 =SUM(D12:017) NPV pv@17% Present value =B21*C21 Cash flows -460000 210000 210000 210000 =IRR(B21:B24) =C21/1.17 =C22/1.17 =C23/1.17 NPV =B22*C22 =B23*C23 =B24*C24 =SUM(D21:D24) 25 IRR