Hosier and Wogan (H&W) is a partnership that owns a small company. It is conside

Question

Hosier and Wogan (H&W) is a partnership that owns a small company. It is considering two alternative investment opportunities. The first investment opportunity will have a five-year useful life, will cost $17,220.83, and will generate expected cash inflows of $4,200 per year. The second investment is expected to have a useful life of four years, will cost $7,867.02, and will generate expected cash inflows of $2,700 per year. Assume that H&W has the funds available to accept only one of the opportunities. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Calculate the internal rate of return of each investment opportunity.

First investment=

Second investment=

      

Hosier and Wogan (H&W) is a partnership that owns a small company. It is considering two alternative investment opportunities. The first investment opportunity will have a five-year useful life, will cost $17,220.83, and will generate expected cash inflows of $4,200 per year. The second investment is expected to have a useful life of four years, will cost $7,867.02, and will generate expected cash inflows of $2,700 per year. Assume that H&W has the funds available to accept only one of the opportunities. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Explanation / Answer

Answer:a Calculation of the IRR:

Answer:b Second Investment should be chosen because it has highest IRR.

First investment Second investment Year Cash Flow ($) Cash Flow ($) 0 -17220.83 -7867.02 1 4200 2700 2 4200 2700 3 4200 2700 4 4200 2700 5 4200 2700 IRR 7.00% 21.19%

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