Answered: Net Cash Flow Project A Project B…

Net Cash Flow Project A Project B -$10,000 --$20,000 $5,500 $0 $5,500 $0 3 $5,500 $40,000 IRR 30% ? PW(15%) ? $6,300 1, 2.

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 8EP

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Consider the following two investment alternatives:

The firm's MARR is known to be 15%.
(a) Compute the IRR of Project B.
(b) Compute the PW of Project A. (c) Suppose that Projects A and B are mutually exclusive. Using the IRR, which
project would you select?

Net Cash Flow
Project A
Project B
-$10,000
--$20,000
$5,500
$0
$5,500
$0
3
$5,500
$40,000
IRR
30%
?
PW(15%)
?
$6,300
1,
2.

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

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