Question 19(4.5 points) As the director of capital budgeting for Denver Corporat

Question

Question 19(4.5 points) As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Project X Project Z Year Cash Flow Cash Flow O-$100,000 -$100,000 1 50,000 10,000 2 40,000 30,000 3 30,000 40,000 4 10,000 60,000lf Denver's cost of capital is 15 percent, which project would you choose? Neither project. Project X, since it has the higher IRR. Project Z, since it has the higher NPV. Project X, since it has the higher NPV. Project Z, since it has the higher IRR.

Explanation / Answer

X:

Present value of inflow=cash inflows*present value of discounting factor (15%, time period)

=50000/1.15+40000/1.15^2+30000/1.15^3+10000/1.15^4

=$99167.03

NPV=present value of inflows-present value of outflows

=(99167.03-100,000)

=($832.97)(approx)(negative)

Z:

Present value of inflows=10000/1.15+30000/1.15^2+40000/1.15^3+60000/1.15^4

=$91985.81

NPV=(91985.81-100,000)

=($8014.19)(negative .

Hence since NPV is negative for both the projects, neither projects is the correct option.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.