Question

Dwight Donovan, the president of Baird Enterprises, is considering two investment opportunities. Because of limited resources
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Answer #1
Net Present Value
Project A = $   28,238.36
Project B = $     9,127.36
Which project should be accepted = Project A
IRR
Project A = 20%
Project B = 16%
Which project should be accepted = Project A
Workings:
Project A:
Year Value Flows Present Factor @ 6% Present Value
Initial Cost 0 $   -1,05,000 1 $       -1,05,000
Cash Inflows 1 - 3 $         49,846 2.6730 $         1,33,238
Net Present Value $      28,238.36
Year Value Flows
0 $   -1,05,000
1 $         49,846
2 $         49,846
3 $         49,846
IRR = 20%
Project B:
Year Value Flows Present Factor @ 6% Present Value
Initial Cost 0 $       -48,000 1 $           -48,000
Cash Inflows 1 - 3 $         21,372 2.6730 $            57,127
Net Present Value $         9,127.36
Year Value Flows
0 $       -48,000
1 $         21,372
2 $         21,372
3 $         21,372
IRR = 16%
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