You are analyzing two mutually exclusive projects with the following cash flows:

Question

You are analyzing two mutually exclusive projects with the following cash flows:

Please use excel to figure out A-D. I would like to know how to work this problem out using excel and/or formulas on excel. Please show as much work as possible.

Year $4,000,000 $2,000,000 $1,500,000 S 1,250,000 0 $4,000,000 $1,000,000 $1,500,000 $1,700,000 $2,400,000 2 $1.000,000$2.400,000 4 a. Estimate the NPV of each project, assuming a cost of capital of 10%. Which is the better project? b. Estimate the IRR for each project. Which is the better project? c. What reinvestment rate assumptions are made by each of these rules? Can you show the effect on future cash flows of these assumptions? d. What is the MIRR on each of these projects?

Explanation / Answer

A B 0 -4000000 -4000000 1 2000000 1000000 2 1500000 1500000 3 1250000 1700000 4 1000000 2400000 NPV $618,189.27 $968,388.90 IRR 19% 20% B is better Project as IRR of 20%

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