CAPITAL BUDGETING Projects A and B are mutually exclusive projects. They have th

Question

CAPITAL BUDGETING

Projects A and B are mutually exclusive projects. They have the following cash flows: Use increments of 2% in finding the profile (ie., 0%,2%,4%,etc.) out to 28%. From your profile, approximately what is the ERR of project A and the IRR of project B? If the required rate of return (r) is 7%, which project should you choose? Do a NPV profile for this capital budgeting project. Use 12% increments out to 156%when finding the NPV profile Redo the NPV profile using 6% increments to find the IRR, what can you say about the approximate IRR?

Explanation / Answer

B) IRR computation for the both projects

IRR of project A is 14%

IRR of project B is 12%

C)n Evaluation of Propasal

Decision : project B should choose as NPV is more than the NPV of project A(Also consider other factors)

Year Project A Project B 0 -16000 -16000 1 9500 4500 2 4000 3000 3 5200 3500 4 1200 5000 5 900 7000

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