You have two potential investment projects, Project A and Project B. You can take one, but...

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Finance

You have two potential investment projects, Project A andProject B. You can take one, but not both. The annual cash flowsfor the two projects are:
Year
0
1
2
3
Project A Cash Flow
-$50,000
$45,000
$5,000
$5,000
Project B Cash Flow
-$50,000
$5,000
$5,000
$50,000
a. Compute the IRR for each project. b) Compute the NPV for eachproject if the appropriate discount rate is5%. Which project would you take, and why?c) Compute the NPV for each project if the appropriatediscount rate is 10%. Which project would you take, and why? d)Summarize the principles demonstrated by this problem.

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4.4 Ratings (638 Votes)

Using excel to calculate IRR and NPV at 5 and NPV at 10 A B Year Project A Project B 1 0 50000 50000 2 1 45000 5000 3 2 5000 5000 4 3 5000 50000 NPV at 5 171148 See Answer

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Transcribed Image Text

You have two potential investment projects, Project A andProject B. You can take one, but not both. The annual cash flowsfor the two projects are:Year0123Project A Cash Flow-$50,000$45,000$5,000$5,000Project B Cash Flow-$50,000$5,000$5,000$50,000a. Compute the IRR for each project. b) Compute the NPV for eachproject if the appropriate discount rate is5%. Which project would you take, and why?c) Compute the NPV for each project if the appropriatediscount rate is 10%. Which project would you take, and why? d)Summarize the principles demonstrated by this problem.

Year	0	1	2	3
Project A Cash Flow	-$50,000	$45,000	$5,000	$5,000
Project B Cash Flow	-$50,000	$5,000	$5,000	$50,000