Create a spreadsheet to answer the following questions: Calculate the internal rate of return (IRR) for each project. Discuss any conflict in ranking that may exist between NPV and IRR. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
Juhayna Food Industries is attempting to select the best of three mutually exclusive projects.
The initial investment and after-tax
|
Cash flow |
Project A |
Project B |
Project C |
|
Initial Investment |
100000 |
120,000 |
130,000 |
|
Year 1 Cash Inflows |
30000 |
36,500 |
38000 |
|
Year 2 cash inflows |
35000 |
45000 |
20000 |
|
Year 3 cash inflows |
40000 |
40000 |
42000 |
|
Year 4 cash inflows |
38000 |
35000 |
45000 |
|
Year 5 cash inflows |
20000 |
30000 |
50000 |
Taking into consideration that the cost of debt 7% , cost of
payback period:
project A YEAR OF FULL RECOVERY = 3
project B full recovery=2+38500040000=2.963 YEARS
project c full recovery=3+3000045000=3.67 YEARS
project A: 18656.93
project B: 16200.16
project C: 6736.876
Create a spreadsheet to answer the following questions:
- Calculate the
internal rate of return (IRR) for each project. - Discuss any conflict in ranking that may exist between NPV and IRR.
- Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
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