Jekyll & Hyde Corp. is evaluating two mutually exclusive projects. The cost of c

Question

Jekyll & Hyde Corp. is evaluating two mutually exclusive projects. The cost of capital is 15 percent. Costs and cash flows are given in the following table. Year Project 1 Project 2 0 -$1,326,972 -$1,133,755 1 254,725 327,075 2 377,335 327,075 3 414,270 327,075 4 544,450 327,075 5 805,800 327,075 Calculate NPV and IRR of two projects. (Enter negative amounts using negative sign, e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25 or 12.25%.) NPV of project 1 is $ NPV of project 2 is $ IRR of project 1 is % IRR of project 2 is % Which project should be accepted? Jekyll and Hyde Corp. should accept

Explanation / Answer

NPV of project 1 =-1,326,972+(254,725/1.15)+(377,335/1.15^2)+(414,270/1.15^3)+(544,450/1.15^4)+(805,800/1.15^5)= $164152.788 NPV of project 2= -1,133,755+(327,075/1.15)+(327,075/1.15^2)+(327,075/1.15^3)+(327,075/1.15^4)+(327,075/1.15^5)= $-37348.87 IRR of project 1, 1,326,972= (254,725/r)+(377,335/r^2)+(414,270/r^3)+(544,450/r^4)+(805,800/r^5) IRR= 19.24% IRR of project 2, 1,133,755= (327,075/r)+(327,075/r^2)+(327,075/r^3)+(327,075/r^4)+(327,075/r^5) IRR= 13.6% Jekyll and Hyde Corp. should accept project 1, since it Npv and IRR is more than project 2

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