Problem 1: As the financial manager of the firm, you are given 6 future projects with...

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Finance

Problem 1:
As the financial manager of the firm, you are given 6 future projects with their expected cost and yearly profits.
Year
Project A
Project B
Project C
Project D
Project E
0
-$500,000.00
-$400,000.00
-$300,000.00
-$200,000.00
-$100,000.00
1
$135,000.00
$112,500.00
$90,000.00
$57,500.00
$30,000.00
2
$145,000.00
$125,000.00
$90,000.00
$62,500.00
$32,000.00
3
$155,000.00
$130,000.00
$90,000.00
$67,500.00
$34,000.00
4
$165,000.00
$135,000.00
$90,000.00
$70,000.00
$36,000.00
5
$175,000.00
$140,000.00
$90,000.00
$72,500.00
$38,000.00
Calculate the NPV for each project if the company has a 10% discount rate
Calculate the IRR for each project if you can finance and reinvest at 10%
Your firm has a budget constraint of $800,000. Based on this constraint, which projects should the company implement?

Answer & Explanation Solved by verified expert

4.5 Ratings (1048 Votes)

Using excel formula to calculate NPV and IRR

		A	B	C	D	E
	Year	Project A	Project B	Project C	Project D	Project E
1	0	($500,000.00)	($400,000.00)	($300,000.00)	($200,000.00)	($100,000.00)
2	1	$135,000.00	$112,500.00	$90,000.00	$57,500.00	$30,000.00
3	2	$145,000.00	$125,000.00	$90,000.00	$62,500.00	$32,000.00
4	3	$155,000.00	$130,000.00	$90,000.00	$67,500.00	$34,000.00
5	4	$165,000.00	$135,000.00	$90,000.00	$70,000.00	$36,000.00
6	5	$175,000.00	$140,000.00	$90,000.00	$72,500.00	$38,000.00
	NPV	$80,374.23	$82,385.24	$41,170.81	$47,467.11	$27,447.21
	EXCEL FORMULA	A1+NPV(0.1,A2:A6)	B1+NPV(0.1,B2:B6)	C1+NPV(0.1,C2:C6)	D1+NPV(0.1,D2:D6)	E1+NPV(0.1,A2:A6)
	IRR	15.83%	17.47%	15.24%	18.53%	19.80%
	EXCEL FORMULA	IRR(A1:A6)	IRR(B1:B6)	IRR(C1:C6)	IRR(D1:D6)	IRR(E1:E6)

C. Based on NPV projects should be selected. Selecting Project B,D and E would give highest NPV

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Transcribed Image Text

Problem 1:As the financial manager of the firm, you are given 6 future projects with their expected cost and yearly profits.YearProject AProject BProject CProject DProject E0-$500,000.00-$400,000.00-$300,000.00-$200,000.00-$100,000.001$135,000.00$112,500.00$90,000.00$57,500.00$30,000.002$145,000.00$125,000.00$90,000.00$62,500.00$32,000.003$155,000.00$130,000.00$90,000.00$67,500.00$34,000.004$165,000.00$135,000.00$90,000.00$70,000.00$36,000.005$175,000.00$140,000.00$90,000.00$72,500.00$38,000.00Calculate the NPV for each project if the company has a 10% discount rateCalculate the IRR for each project if you can finance and reinvest at 10%Your firm has a budget constraint of $800,000. Based on this constraint, which projects should the company implement?