As director of capital budgeting, you are reviewing three potential investment projects with the following cost...

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Accounting

As director of capital budgeting, you are reviewing threepotential investment projects with the following cost and cash flowprojections.
Cash Flow
Project A
Project B
Project C
Investment Cost
($400,000)
($375,000)
($400,000)
Year One Cash Flow
$200,000
$75,000
$50,000
Year Two Cash Flow
$50,000
$75,000
$120,000
Year Three Cash Flow
$75,000
$85,000
$140,000
Year Four Cash Flow
$50,000
$225,000
$125,000
Year Five Cash Flow
$125,000
$60,000
$125,000
1.Calculate the Internal Rate of Return (IRR) for eachproject.
2.Assuming your capital investment budget of $500,000 will onlyallow selection of one project (thus the projects are now mutuallyexclusive), which project should you fund?

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3.9 Ratings (551 Votes)

Correct Answer 1 IRR Project A 9 Project B 16 Project C 11 2 Which project should you fund Project B because it has the highest IRR of 16 in all the three projects Working Project A year Cash Inflow outflow Discount rate 5 Present value Discount Rate 10 Present value 0 400000 1 40000000 1 400000 1 200000 0952381 19047619 0909091 18181818 2 50000 0907029 4535147 See Answer

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Cash Flow	Project A	Project B	Project C
Investment Cost	($400,000)	($375,000)	($400,000)
Year One Cash Flow	$200,000	$75,000	$50,000
Year Two Cash Flow	$50,000	$75,000	$120,000
Year Three Cash Flow	$75,000	$85,000	$140,000
Year Four Cash Flow	$50,000	$225,000	$125,000
Year Five Cash Flow	$125,000	$60,000	$125,000