enior management asks you to recommend a decision on which project(s) to accept based on the cash flow forecasts provided. Relevant information: The firm uses a 3-year cutoff when using the payback method. The hurdle rate used to evaluate capital budgeting projects is 15%. The cash flows for projects A, B and C are provided below. Project A Project B Project C Year 0 -30,000 -20,000 -50,000 Year 1 0 4,000 20,000 Year 2 7,000 5,000 20,000 Year 3 20,000 6,000 20,000 Year 4 20,000 7,000 5,000 Year 5 10,000 8,000 5,000 Year 6 5,000 9,000 5,000 Calculate the internal rate of return (IRR) for each project in excel Which projects would you accept based on the IRR criterion?
enior management asks you to recommend a decision on which project(s) to accept based on the cash flow forecasts provided. Relevant information: The firm uses a 3-year cutoff when using the payback method. The hurdle rate used to evaluate capital budgeting projects is 15%. The cash flows for projects A, B and C are provided below. Project A Project B Project C Year 0 -30,000 -20,000 -50,000 Year 1 0 4,000 20,000 Year 2 7,000 5,000 20,000 Year 3 20,000 6,000 20,000 Year 4 20,000 7,000 5,000 Year 5 10,000 8,000 5,000 Year 6 5,000 9,000 5,000 Calculate the internal rate of return (IRR) for each project in excel Which projects would you accept based on the IRR criterion?
Chapter9: Capital Budgeting Techniques
Section: Chapter Questions
Problem 8PROB
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Question
Senior management asks you to recommend a decision on which project(s) to accept based on the cash flow
Relevant information:
- The firm uses a 3-year cutoff when using the payback method.
- The hurdle rate used to evaluate capital budgeting projects is 15%.
The cash flows for projects A, B and C are provided below.
|
|
Project A |
Project B |
Project C |
|
Year 0 |
-30,000 |
-20,000 |
-50,000 |
|
Year 1 |
0 |
4,000 |
20,000 |
|
Year 2 |
7,000 |
5,000 |
20,000 |
|
Year 3 |
20,000 |
6,000 |
20,000 |
|
Year 4 |
20,000 |
7,000 |
5,000 |
|
Year 5 |
10,000 |
8,000 |
5,000 |
|
Year 6 |
5,000 |
9,000 |
5,000 |
- Calculate the
internal rate of return (IRR) for each project in excel - Which projects would you accept based on the IRR criterion?
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