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Kerron Company is presented with the following two mutually exclusive projects.

ID: 2726408 • Letter: K

Question

Kerron Company is presented with the following two mutually exclusive projects. The required return for both projects is 19 percent. Year Project M Project N 0 –$136,000 –$369,000 1 64,900 145,500 2 82,900 194,000 3 73,900 130,500 4 59,900 124,000 Required: (a) What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) IRR Project M % Project N % (b) What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) NPV Project M $ Project N $

Explanation / Answer

Project M

NPV is the sum of present value of cash flows. PV is the PV factor times cash flows.

year

Cash flow

PV factor 19%

PV

0

-136000

1

-136000

1

64900

0.840336134

54537.82

2

82900

0.706164819

58541.06

3

73900

0.593415814

43853.43

4

59900

0.498668751

29870.26

NPV

29870.26

So NPV would be 29,870.26.

IRR can be calculated using IRR function in excel.

IRR= 37.61%

Project N

year

Cash flow

PV factor 19%

PV

0

-369000

1

-369000

1

145500

0.840336134

122268.9

2

194000

0.706164819

136996

3

130500

0.593415814

77440.76

4

124000

0.498668751

61834.93

NPV

61834.93

NPV = 61,834.93

IRR = 23.28%

year

Cash flow

PV factor 19%

PV

0

-136000

1

-136000

1

64900

0.840336134

54537.82

2

82900

0.706164819

58541.06

3

73900

0.593415814

43853.43

4

59900

0.498668751

29870.26

NPV

29870.26