1) Project K costs $51,788.84, its expected cash inflows are $12,000 per year fo

Question

1) Project K costs $51,788.84, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the project's IRR? Round your answer to two decimal places.

__________ %

2) A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

The company's WACC is 8.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

____________%

3) Project K costs $75,000, its expected cash inflows are $15,000 per year for 8 years, and its WACC is 9%. What is the project's NPV? Round your answer to the nearest cent.

$ ____________

Explanation / Answer

Using BA II plus calculator:

1. Go to cash flow mode

CF0= -51788.84, CF1=12000, F= 8, IRR CPT

IRR= 16.20%

IRR IS GREATER THAN WACC , ACCEPT THE PROJECT.

2. Calculation of NPVs of both projects:

Project S CF0= -1000, CF1= 882.94, CF2=240, CF3=15,CF4=10 I=8, NPV CPT= 42.556,

EAA: -42.556 PV,4 N, 8I/Y, CPT PMT, EAA= 12.85

Project L CF0= -1000,CF1=10,CF2=250,CF3=400, CF4=830.58, I=8, NPV CPT=151.62

EAA: -151.63 PV, 4N, 8I/Y, CPT PMT, EAA= 45.78

As the NPV and EAA of project L is higher , hence project Lis accepted.

IRR of project L: CF0= -1000,CF1=10,CF2=250,CF3=400, CF4=830.58, IRR CPT

IRR= 12.70%

3.CF0= -75000, CF1= 15000, F=8, I=9, NPV CPT

NPV= $8022.29 OR $8000

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