Project S has a cost of $9,000 and is expected to produce benefits (cash flows)

Question

Project S has a cost of $9,000 and is expected to produce benefits (cash flows) of $2,700 per year for 5 years. Project L costs $26,000 and is expected to produce cash flows of $7,100 per year for 5 years.

a. Calculate the two projects' NPVs, assuming a cost of capital of 10%. Round your answers to the nearest cent.

project S                    $

Project L                    $

Which project would be selected, assuming they are mutually exclusive?

b. Calculate the two projects' IRRs. Round your answers to two decimal places.

project S                 %

project L                  %

Which project would be selected, assuming they are mutually exclusive?

C.Calculate the two projects' MIRRs, assuming a cost of capital of 10%. Round your answers to two decimal places.

project s               %

project L                %

Which project would be selected, assuming they are mutually exclusive?

Calculate the two projects' PIs, assuming a cost of capital of 10%. Round your answers to two decimal places.

Project S

Project L

Which project would be selected, assuming they are mutually exclusive?

Which project should actually be selected?

Explanation / Answer

Answer to question a.

Project S

Project S to be chosen.

Answer to question b.

Project S = 15.25% approx

Project L = 11.50% approx

Project S to be chosen for higher IRR.

Answer to question c.

Project S = 35.33%

Project L = 22.39%

Project S to be chosen.

Answer to question d.

PI = Total cash inflow / cash outflow

Project S = 1.12

Project L = 1.04

Project S tp be chosen.

Year Cash Outflow Cash Inflow PV Factor PV 1 $       9,000.00 $     2,700.00 1.10 $    2,454.55 2 $                    -   $     2,700.00 1.10^2 $    2,231.40 3 $                    -   $     2,700.00 1.10^3 $    2,028.55 4 $                    -   $     2,700.00 1.10^4 $    1,844.14 5 $                    -   $     2,700.00 1.10^5 $    1,676.49 $       9,000.00 $ 10,235.12 NPV = $     1,235.12 Project L Year Cash Outflow Cash Inflow PV Factor PV 1 $     26,000.00 $     7,100.00 1.10 $    6,454.55 2 $                    -   $     7,100.00 1.10^2 $    5,867.77 3 $                    -   $     7,100.00 1.10^3 $    5,334.34 4 $                    -   $     7,100.00 1.10^4 $    4,849.40 5 $                    -   $     7,100.00 1.10^5 $    4,408.54 $     26,000.00 $ 26,914.59 NPV = $         914.59

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