Use the following information for Questions 1 through 3: Assume you are presente
ID: 2383153 • Letter: U
Question
Use the following information for Questions 1 through 3:
Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows:
1. (a) What is each project’s IRR?
(b) If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?
3. What is the crossover rate, and what is its significance?
EXPECTED NET CASH FLOWS: Year Project A Project B 0 $ (400) $ (650) 1 $ (528) $ 210 2 $ (219) $ 210 3 $ (150) $ 210 4 $ 1,100 $ 210 5 $ 820 $ 210 6 $ 990 $ 210 7 $ (325) $ 210Explanation / Answer
Ans
Ans 1 a Project A Project B Project A Project B Project A Project B Year Cash Flow Cash flow DF@ IRR DF@ IRR NPV@ IRR NPV@ IRR 0 -400.00 -650.00 1.00 1.00 -400.00 -650.00 1 -528.00 210.00 0.83 0.79 -437.62 166.87 2 -219.00 210.00 0.69 0.63 -150.45 132.60 3 -150.00 210.00 0.57 0.50 -85.41 105.37 4 1,100.00 210.00 0.47 0.40 519.11 83.73 5 820.00 210.00 0.39 0.32 320.74 66.54 6 990.00 210.00 0.32 0.25 320.95 52.87 7 -325.00 210.00 0.27 0.20 -87.33 42.01 0.00 0.00 IRR Using Excel 20.651% 25.844%Related Questions
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