Calculate the NPV of each project. Calculate the IRR of each project. Botany Des

Question

Calculate the NPV of each project.

Calculate the IRR of each project.

Botany Designs is looking to revamp its manufacturing facility and has two different options they can choose from. The initial investment for each option is $100,000. They have set a minimum payback requirement of 4 years. The cost of capital is going to be 11% for each project.

Cash Inflows for years 1-5 are:

Year

Project Speedy (S)

Project Quality (Q)

1

32000

22500

2

32000

22500

3

32000

22500

4

32000

22500

5

32000

22500

Year

Project Speedy (S)

Project Quality (Q)

1

32000

22500

2

32000

22500

3

32000

22500

4

32000

22500

5

32000

22500

Explanation / Answer

NPV ( Project Speedy ) =100000- PV of annuity(A=32000,I=11% , N=5)=3.6959*32000-100000=18268.8

NPV((Project Quality)=100000- PV of annuity(A=22500,I=11% , N=5)=3.6959*22500-100000=-16842.3

Cell Speedy Quality A1 -100000 -100000 A2 32000 22500 A3 32000 22500 A4 32000 22500 A5 32000 22500 A6 32000 22500 By excel,IRR(A1:A6,0.01) 18% 4%

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