You are considering the following two mutually exclusive projects. The required

Question

You are considering the following two mutually exclusive projects. The required rate of return is 14.6 percent for project A and 13.8 percent for project B. Which project should you accept and why? A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following Cash Flows: If the required return is 18 percent, what is the IRR for this project? (Round your answer to 2 decimal places. (e.g., 32.16)) Should the firm accept the following project? What is the net present value of a project with the following cash flows and a required return of 14 percent?

Explanation / Answer

1.

Year

Project A

Project B

0

-50000

-50000

1

24800

41000

2

36000

20000

3

21000

10000

NPV

13,004.95

8,256.98

Project A should be accepted as it had higher NPV and is about 4900 more than NPV of project B

Answer is C

2.

IRR by excel formula of IRR

Year

Cash Flow

0

-27800

1

11800

2

14800

3

10800

IRR

16.64%

IRR=16.64%

Since the required rate of return (18%) is more than IRR(16.64%), the project should not be accepted

Hence No

3.

Using Excel Formula=-45400+NPV(0.14,B5:B7)

Year

Cash Flow

0

-45400

1

13350

2

31530

3

3050

NPV

-7,369.50

Answer is D (-7639.5)

Year

Project A

Project B

0

-50000

-50000

1

24800

41000

2

36000

20000

3

21000

10000

NPV

13,004.95

8,256.98

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