Compar y?sconsidering two mutually exclusive pro ects The tm which has a cost of

Question

Compar y?sconsidering two mutually exclusive pro ects The tm which has a cost of capital of 10%, has estnated its cash nows as sho ninthe fol mg tabl Calculate the NPV of each project, and assess ts acceptabity b. Calculate the IRR for each project, and assess its acceptability a. The NPV of project Aiss( Round to the nearest cent) According to the NPV method, is project A acceptable? (Select the best answer below) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) No O Yes The NPV of project B is s (Round to the nearest cent.) Is project B acceptable on the basis of NPV? (Select the best answer below) O Yes O No b. The iRR of project Ais?%, (Round to two dec mal places ) is project A acceptable on the basis of IRR? (Selegt the best answer below) Project 8 s 99,000 Initial investment $110,000 CFo) 0 Cash infnlowS (CF. Year (o $35,000 $40,000 $40,000 540,000 520,000 25.000 520 000 Print Done No ?Yes The IRR of project B is?% (Round to two decimal places ) Click to select your answers

Explanation / Answer

Project A

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r= 10%

0

-110000

-110000

1

25000

22727.27

2

35000

28925.62

3

40000

30052.59

4

40000

27320.54

5

50000

31046.07

NPV

sum of present value of cash flow

30072.09

Yes it is accepted

Project B

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r= 10%

0

-99000

-99000

1

50000

45454.55

2

40000

33057.85

3

20000

15026.3

4

25000

17075.34

5

20000

12418.43

NPV

sum of present value of cash flow

24032.46

Yes it is accepted

Project A

Year

cash flow

0

-110000

1

25000

2

35000

3

40000

4

40000

5

50000

IRR = Using IRR function In MS excel =irr(-110000,25000,35000,40000,40000,50000)

19.13%

Yes it is accepted

Project B

Year

cash flow

0

-99000

1

50000

2

40000

3

20000

4

25000

5

20000

IRR = Using IRR function In MS excel =irr(-99000,50000,40000,20000,25000,20000)

21.17%

Yes it is accepted

Project A

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r= 10%

0

-110000

-110000

1

25000

22727.27

2

35000

28925.62

3

40000

30052.59

4

40000

27320.54

5

50000

31046.07

NPV

sum of present value of cash flow

30072.09

Yes it is accepted

Project B

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r= 10%

0

-99000

-99000

1

50000

45454.55

2

40000

33057.85

3

20000

15026.3

4

25000

17075.34

5

20000

12418.43

NPV

sum of present value of cash flow

24032.46

Yes it is accepted

Project A

Year

cash flow

0

-110000

1

25000

2

35000

3

40000

4

40000

5

50000

IRR = Using IRR function In MS excel =irr(-110000,25000,35000,40000,40000,50000)

19.13%

Yes it is accepted

Project B

Year

cash flow

0

-99000

1

50000

2

40000

3

20000

4

25000

5

20000

IRR = Using IRR function In MS excel =irr(-99000,50000,40000,20000,25000,20000)

21.17%

Yes it is accepted

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