Homework Answers
| Project A | |||
| Year | CashFlows | Discounting
Factor [1/(1.11^year)] |
PV of Cash
Flows (cash flow*discounting factor) |
| 0 | -65000 | 1 | -65000 |
| 1 | 9000 | 0.900900901 | 8108.108108 |
| 2 | 14000 | 0.811622433 | 11362.71407 |
| 3 | 19000 | 0.731191381 | 13892.63624 |
| 4 | 26000 | 0.658730974 | 17127.00533 |
| 5 | 29000 | 0.593451328 | 17210.08851 |
| NPV
= Sum of above PVs |
2700.55226 | ||
| IRR
= (By IRR Formula) |
12.36% |
| Project B | |||
| Year | CashFlows | Discounting
Factor [1/(1.11^year)] |
PV of Cash
Flows (cash flow*discounting factor) |
| 0 | -110000 | 1 | -110000 |
| 1 | 26000 | 0.900900901 | 23423.42342 |
| 2 | 26000 | 0.811622433 | 21102.18326 |
| 3 | 26000 | 0.731191381 | 19010.97591 |
| 4 | 26000 | 0.658730974 | 17127.00533 |
| 5 | 26000 | 0.593451328 | 15429.73453 |
| NPV
= Sum of above PVs |
-13906.67754 | ||
| IRR
= (By IRR Formula) |
5.84% |
| Project C | |||
| Year | CashFlows | Discounting
Factor [1/(1.11^year)] |
PV of Cash
Flows (cash flow*discounting factor) |
| 0 | -420000 | 1 | -420000 |
| 1 | 230000 | 0.900900901 | 207207.2072 |
| 2 | 230000 | 0.811622433 | 186673.1596 |
| 3 | 230000 | 0.731191381 | 168174.0177 |
| NPV
= Sum of above PVs |
142054.3846 | ||
| IRR
= (By IRR Formula) |
29.61% |
NPV should be Positive and IRR should be Greater than Required Rate of Return i.e. 11%
Therefore, Project A & C should be Accepted.
Add Answer to:
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