Bulldog Memorabilia, a small screen printing firm, is considering investing in new technology that allows customers...

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Finance

Bulldog Memorabilia, a small screen printing firm, isconsidering investing in new technology that allows customers todesign their own products online, then they are automaticallyprinted and shipped with only minimal labor costs. The firm hasprojected the following cash flows
Time0 Time1 Time2 Time3 Time4 Time 5
-2,000,000 450,000 550,000 625,000 600,000 400,000
The firm anticipates selling theequipment for 300,000 (its salvage value) at time 5 and estimatesthe project cost of capital to be 10%. The firm estimates the IRRon the project to be 13.19%
Will the NPV and IRR always provide the same accept / rejectdecision (is it possible for you to accept a project using NPV andreject it using IRR). Explain in detail (show why they will alwaysagree or provide an example where they don’t) (5 points)
If you were comparing this project to another project and couldonly accept one of them, would it matter if you ranked the projectsbased upon their NPV or IRR? Explain in detail. (5 points)

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3.8 Ratings (694 Votes)

A both the NPV and IRR methods will give the same result whenit comes to a single project This is because if the internal rateof return off of project is lesser than its cost of capital itsnet present See Answer

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Transcribed Image Text

Bulldog Memorabilia, a small screen printing firm, isconsidering investing in new technology that allows customers todesign their own products online, then they are automaticallyprinted and shipped with only minimal labor costs. The firm hasprojected the following cash flowsTime0 Time1 Time2 Time3 Time4 Time 5-2,000,000 450,000 550,000 625,000 600,000 400,000The firm anticipates selling theequipment for 300,000 (its salvage value) at time 5 and estimatesthe project cost of capital to be 10%. The firm estimates the IRRon the project to be 13.19%Will the NPV and IRR always provide the same accept / rejectdecision (is it possible for you to accept a project using NPV andreject it using IRR). Explain in detail (show why they will alwaysagree or provide an example where they don’t) (5 points)If you were comparing this project to another project and couldonly accept one of them, would it matter if you ranked the projectsbased upon their NPV or IRR? Explain in detail. (5 points)