Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marge’s opportunity cost...

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Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marge’s opportunity cost...

Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marge’s opportunity cost of capital is 12%.

Year	Project A	Project B
0	−$20,000	−$20,000
1	15,000	2,000
2	15,000	2,500
3	13,000	3,000
4	3,000	50,000

Calculate NPV for both projects.
Calculate IRR for both projects (Hint: the equation of calculating IRR).
Calculate profitability index for both projects.
Calculate payback period for both projects.
Which business opportunity is better? Use IRR_A=54.7%, IRR_B=33.3%, cross over point=14.1%. (Hint: provide your choice with different discount rate)

business finance

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Answer 1

Answer #1

foc =SUM(13:17) B C D 1 2 year Cash flows pv@12% Present value Cumulative CF 0 $ (20,000.00) 1.0000 $ (20,000.00) $ (20,000.0

fix =SUM(13:17) А в с 1 A 2 year Cash flows 30 -20000 4 1 15000 5 2 15000 6 3 13000 7 4 3000 8 IRR IRR(B3:37) pv@12% Present

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Answer 2

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