A firm has a capital budget of $100 which must be spent on 1 pf 2...

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Finance

A firm has a capital budget of $100 which must be spent on 1 pf2 projects, each requiring a present outlay of $100. Project Ayields a return of $120 after 1 year, whereas Project B yields$201.14 after 5 years.
Calculate
The NPV of each project using 10% discount rate
The IRR of each project
What are the project rankings on the basis of these twoinvestment decision rules? Supposed that you are told that thefirms reinvestment rate 12% which project should the firmschoose?

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4.4 Ratings (933 Votes)

Calculation of NPV Using discount rater10 Year Cash flowA Cash FlowB PV factor11rn Discounted CF A Discounted CF B 0 100 100 1 100 100 1 120 0909090909 1090909091 0 2 0826446281 0 0 3 0751314801 0 0 4 0683013455 0 0 5 20114 0620921323 0 1248921149 NPV 9090909091 See Answer

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A firm has a capital budget of $100 which must be spent on 1 pf2 projects, each requiring a present outlay of $100. Project Ayields a return of $120 after 1 year, whereas Project B yields$201.14 after 5 years.CalculateThe NPV of each project using 10% discount rateThe IRR of each projectWhat are the project rankings on the basis of these twoinvestment decision rules? Supposed that you are told that thefirms reinvestment rate 12% which project should the firmschoose?