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QUESTION 6 1) "Millie's Ice Cream" Company Limited has two (2) projects under consideration. The cash flows for each project are shown in the following table. The firm will be using a bank loan that has an annual interest of 13% to finance this project. Project A $212,000 Cash Inflows (CF,) Project B $212,000 Initial Investment (CFo) Year $62,000 $62,000 1 $90,000 $80,000 2 $62,000 $62,000 $62,000 $65,000 $55,000 3 4 $40,000 a. Calculate each project's net present value (NPV). Which project is preferred according to this method? b. Calculate each project's payback period. Which project is preferred according to this method? c. Given the net present vales (NPVS) calculated in part a, which project will have a greater Internal Rate of Return (IRR)? Please provide a brief explanation for your response.

QUESTION 6 1) "Millie's Ice Cream" Company Limited has two (2) projects under consideration. The cash flows for each project are shown in the following table. The firm will be using a bank loan that has an annual interest of 13% to finance this project. Project A $212,000 Cash Inflows (CF,) Project B $212,000 Initial Investment (CFo) Year $62,000 $62,000 1 $90,000 $80,000 2 $62,000 $62,000 $62,000 $65,000 $55,000 3 4 $40,000 a. Calculate each project's net present value (NPV). Which project is preferred according to this method? b. Calculate each project's payback period. Which project is preferred according to this method? c. Given the net present vales (NPVS) calculated in part a, which project will have a greater Internal Rate of Return (IRR)? Please provide a brief explanation for your response.

Financial And Managerial Accounting
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 3CMA
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QUESTION 6 1) "Millie's Ice Cream" Company Limited has two (2) projects under consideration. The cash flows for each project are shown in the following table. The firm will be using a bank loan that has an annual interest of 13% to finance this project. Project A $212,000 Project B $212,000 Cash Inflows (CF,) $90,000 $80,000 Initial Investment (CFo) Year 1 $62,000 $62,000 $62,000 $62,000 $62,000 3 $65,000 $55,000 $40,000 4 a. Calculate each projecť's net present value (NPV). Which project is preferred according to this method? b. Calculate each project's payback period. Which project is preferred according to this method? c. Given the net present vales (NPVS) calculated in part a, which project will have a greater Internal Rate of Return (IRR)? Please provide a brief explanation for your response.
Transcribed Image Text:QUESTION 6 1) "Millie's Ice Cream" Company Limited has two (2) projects under consideration. The cash flows for each project are shown in the following table. The firm will be using a bank loan that has an annual interest of 13% to finance this project. Project A $212,000 Project B $212,000 Cash Inflows (CF,) $90,000 $80,000 Initial Investment (CFo) Year 1 $62,000 $62,000 $62,000 $62,000 $62,000 3 $65,000 $55,000 $40,000 4 a. Calculate each projecť's net present value (NPV). Which project is preferred according to this method? b. Calculate each project's payback period. Which project is preferred according to this method? c. Given the net present vales (NPVS) calculated in part a, which project will have a greater Internal Rate of Return (IRR)? Please provide a brief explanation for your response.
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