Consider the below three investment projects generating cash flows as follows: Project 1 2 3 4 A 1,000,000 550,000 750,000 -500,000 -500,000 -500,000 -500,000 -500,000 -500,000 -500,000 -500,000 -500,000 B 1,000,000 1,000,000 C Assume that the cost of capital is 10%. Use this cost of capital to discount (or inflate) all negative cash flows to the present time and all positive cash flows to period 1 in the below table. Then, calculate the IRR based on the cash flows of period 0 and 1. Project A 1 IRR B Using the above modified IRR, make investment decision for each project. Dose the modified IRR deliver correct decisions?
Consider the below three investment projects generating cash flows as follows: Project 1 2 3 4 A 1,000,000 550,000 750,000 -500,000 -500,000 -500,000 -500,000 -500,000 -500,000 -500,000 -500,000 -500,000 B 1,000,000 1,000,000 C Assume that the cost of capital is 10%. Use this cost of capital to discount (or inflate) all negative cash flows to the present time and all positive cash flows to period 1 in the below table. Then, calculate the IRR based on the cash flows of period 0 and 1. Project A 1 IRR B Using the above modified IRR, make investment decision for each project. Dose the modified IRR deliver correct decisions?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...
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![1. Consider the below three investment projects generating cash flows as follows:
Project
1
2
3
4
-500,000
-500,000
-500,000
А
1,000,000
-500,000
-500,000
-500,000
-500,000
B
550,000
750,000
-500,000
1,000,000
1,000,000
-500,000
Assume that the cost of capital is 10%. Use this cost of capital to discount (or inflate)
all negative cash flows to the present time and all positive cash flows to period 1 in the
below table. Then, calculate the IRR based on the cash flows of period 0 and 1.
Project
1
IRR
А
B
Using the above modified IRR, make investment decision for each project. Dose the
modified IRR deliver correct decisions?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcebd284e-65e1-4f93-9dc6-19abc3c763c2%2Fc53086f2-0a90-4b81-94bd-89ac0d334cc5%2F3hyh2o_processed.png&w=3840&q=75)
Transcribed Image Text:1. Consider the below three investment projects generating cash flows as follows:
Project
1
2
3
4
-500,000
-500,000
-500,000
А
1,000,000
-500,000
-500,000
-500,000
-500,000
B
550,000
750,000
-500,000
1,000,000
1,000,000
-500,000
Assume that the cost of capital is 10%. Use this cost of capital to discount (or inflate)
all negative cash flows to the present time and all positive cash flows to period 1 in the
below table. Then, calculate the IRR based on the cash flows of period 0 and 1.
Project
1
IRR
А
B
Using the above modified IRR, make investment decision for each project. Dose the
modified IRR deliver correct decisions?
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