(IRR and NPV calculation) The cash flows for three independent projects are as f
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Question
(IRR and NPV calculation) The cash flows for three independent projects are as follows:
a. Calculate the IRR for each of the projects.
b. If the discount rate for all three projects is 14 percent, which project or projects would you want to undertake?
c. What is the net present value of each of the projects where the appropriate discount rate is 14 percent?
Project A Project B Project C Year 0 (initial Investment) $ (45,000.00) $ (110,000.00) $ (400,000.00) Year 1 $ 12,000.00 $ 27,000.00 $ 250,000.00 Year 2 $ 18,000.00 $ 27,000.00 $ 250,000.00 Year 3 $ 21,000.00 $ 27,000.00 $ 250,000.00 Year 4 $ 28,000.00 $ 27,000.00 $ - Year 5 $ 33,000.00 $ 27,000.00 $ -Explanation / Answer
(a)
(b) If the discount rate for all three projects is 14 percent then select Project C with IRR 39.45%, the second preference will be Project A with 33% IRR. IRR of Project B is less than 14% hence it should be rejected.
(c)
Year Cash Flows Project A Project B Project C 0 -45000 -110000 -400000 1 12000 27000 250000 2 18000 27000 250000 3 21000 27000 250000 4 28000 27000 0 5 33000 27000 0 IRR Using Excel 33% 7.24% 39.45%Related Questions
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