Project X and Project Y have a cost of $50,000,000 today. Project X will have ca
ID: 2769547 • Letter: P
Question
Project X and Project Y have a cost of $50,000,000 today. Project X will have cash flows of $20,000,000 per year for three years, while Project Y will have cash flows of $18,000,000 the first year, $19,000,000 the second year, and $23,000,000 the third year.
Calculate the NPV and the IRR for Project X using a 10% cost of capital and show your work by using TWO of the following methods: (1) using the formula, (2) identifying all variables using the calculator’s function keys, (3) using the steps on the calculator to calculate NPV and IRR. Note it is an annuity since the cash flows are the same.
Calculate the NPV and the IRR for Project Y using a 10% cost of capital and show your work by using TWO of the following methods: (1) using the formula, (2) identifying all variables using the calculator’s function keys, (3) using the steps on the calculator to calculate NPV and IRR. Note this project has different cash flows.
Should X, Y, both X and Y, or neither be accepted if the projects are independent. Circle your choice
Should X, Y, both X and Y, or neither be accepted if the projects are mutually exclusive. Circle your choice
Explanation / Answer
Answer:
Answer: neither be accepted if the projects are independent because NPV is negative.
Answer:neither be accepted if the projects are mutually exclusive because NPV is negative and IRR is less than cost of capital.
Discount rate 10% 10% Year Project X Project Y 0 -50,000,000 -50,000,000 1 20,000,000 18,000,000 2 20,000,000 19,000,000 3 20,000,000 23,000,000 NPV -262,960.18 -653,643.88 IRR 9.70% 9.29%Related Questions
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