Each alternative involves an initial outlay of $100,000. Their cash flows follow
ID: 2759343 • Letter: E
Question
Each alternative involves an initial outlay of $100,000. Their cash flows follow:
Year
A
B
C
D
1
10,000
50,000
25,000
-
2
20,000
40,000
25,000
-
3
30,000
30,000
25,000
45,000
4
40,000
-
25,000
55,000
5
50,000
-
25,000
60,000
Evaluate and calculate and rank each alternative based on internal rate of return (use 10% discount rate).
A
B
C
D
IRR
-
Year
A
B
C
D
1
10,000
50,000
25,000
-
2
20,000
40,000
25,000
-
3
30,000
30,000
25,000
45,000
4
40,000
-
25,000
55,000
5
50,000
-
25,000
60,000
Explanation / Answer
Calculation of the Internal rate of Return NPV at 10% NPV = Cash Inflows- Cash Outflows From the annuity table NPV = 10000*.909+20000*.826+30000*.751+40000*.683+50000*.621-100000 9091+16528+22540+27321+31046-100000 106526-100000 $6,526 NPV at 20% NPV = 10000*.833+20000*.694+30000*.578+40000*.482+50000*.402-100000 8333+13889+17361+19290+20094-100000 NPV = $ -21033 IRR = Lower Rate+ NPV at Lower Rate/ NPV at Lower Rate+ NPV at Higher Rate ( HR-LR) 10+6526/6526+21033(20-10) Project B NPV at 10% NPV = Cash Inflows- Cash Outflows From the annuity table NPV = 50000*.909+40000*.826+30000*.751+-100000 45455+33058+22540-100000 101052-100000 $1,052 NPV at 20% NPV = 50000*.833+40000*.694+30000*.578-100000 41667+277778+17361-100000 NPV = $ -13194 IRR = Lower Rate+ NPV at Lower Rate/ NPV at Lower Rate+ NPV at Higher Rate ( HR-LR) 10+1052/1052+13194(20-10) 10+.073/14246*10 10+.738 10.738
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.