Question A [AR1: 5 Marks] Consider the projects described in the table below: End of Year Project A...

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Finance

Question A [AR1: 5 Marks]
Consider the projects described in the table below:
End of Year
Project A Cash Flow ($)
Project B Cash Flow ($)
0
$–90,000
$–90,000
1
17,000
0
2
17,000
0
3
17,000
0
4
17,000
0
5
17,000
0
6
17,000
34,000
7
17,000
34,000
8
17,000
34,000
9
17,000
34,000
10
17,000
90,000
Both projects have an appropriate risk adjusted discount rate of7 percent.
Required:
a.
Calculate the NPV and IRR for both projects
b.
If projects A and B are independent, which will youundertake?
c.
If projects A and B are mutually exclusive, which will youundertake?

Answer & Explanation Solved by verified expert

4.4 Ratings (689 Votes)

a Project A Discount rate 7000 Year 0 1 2 3 4 5 6 7 8 9 10 Cash flow stream 90000 17000 17000 17000 17000 17000 17000 17000 17000 17000 17000 Discounting factor 1000 1070 1145 1225 1311 1403 1501 1606 1718 1838 1967 Discounted cash flows project 90000000 15887850 14848458 13877064 12969219 12120765 11327818 10586746 9894155 9246874 8641938 NPV Sum of discounted cash flows NPV Project A 2940089 Where Discounting factor 1 discount See Answer

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Question A [AR1: 5 Marks]Consider the projects described in the table below:End of YearProject A Cash Flow ($)Project B Cash Flow ($)0$–90,000 $–90,000 117,000 0 217,000 0 317,000 0 417,000 0 517,000 0 617,000 34,000 717,000 34,000 817,000 34,000 917,000 34,000 1017,000 90,000 Both projects have an appropriate risk adjusted discount rate of7 percent.Required:a.Calculate the NPV and IRR for both projectsb.If projects A and B are independent, which will youundertake?c.If projects A and B are mutually exclusive, which will youundertake?

End of Year	Project A Cash Flow ($)	Project B Cash Flow ($)
0	$–90,000	$–90,000
1	17,000	0
2	17,000	0
3	17,000	0
4	17,000	0
5	17,000	0
6	17,000	34,000
7	17,000	34,000
8	17,000	34,000
9	17,000	34,000
10	17,000	90,000

a.	Calculate the NPV and IRR for both projects
b.	If projects A and B are independent, which will youundertake?
c.	If projects A and B are mutually exclusive, which will youundertake?