(Related to Checkpoint 11.1 and Checkpoint 11.4) (IRR and NPV calculation) The c
ID: 2786647 • Letter: #
Question
(Related to Checkpoint 11.1 and Checkpoint 11.4) (IRR and NPV calculation) The cash flows for three independent projects are found below: B. a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 12 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 12 percent? a. The IRR of Project A is 13.44 %. (Round to two decimal places.) The IRR of Project B is 1%. (Round to two decimal places.) Data Table Year o (Initial investment) Year 1 Year 2 Year 3 Year 4 Year 5 Project A Project B $(70,000) $(110,000) $13,000 $30,000 14,000 30,000 21,000 30,000 26,000 30,000 33,000 30,000 Project C S(400,000) $230,000 230,000 230,000 Print DoneExplanation / Answer
Question - a
IRR - of the project - A = 13.44% correct
IRR of the project - B
Firstly we calculate the NPV of the project - B at 11% discount rate and also at 12% rate
IRR = 11 % + ( 0 - 876.91 ) / ( -1856.71 - 876.91)
IRR = 11 + 876.91/2733.62 = 11.32 % ...................final answer
IRR OF PROJECT - C
IRR = 33 + ( 0 - 719.28) / ( - 4677.10 - 719.28) = 33 + 719.28 / 5396.38 = 33.13% ..........Final answer
Question - b
If the cost of capital is 12%, we can select a project that is having IRR more than this percentage. So Project - C with highest IRR of 33.33% shall be best choice.
Question - c
Calculation of NPV of all projects at 12% discount rate
Year DF (11%) DF(12%) Proj -B PV(11%) PV(12%) 0 1 1 -110,000 -110000 -110000 1 0.900901 0.89285714 30,000 27027.03 26785.71 2 0.811622 0.79719388 30,000 24348.67 23915.82 3 0.731191 0.71178025 30,000 21935.74 21353.41 4 0.658731 0.63551808 30,000 19761.93 19065.54 5 0.593451 0.56742686 30,000 17803.54 17022.81 NPV 876.9105 -1856.71Related Questions
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