The IRR of the better project. Introduction: Net Present Value (NPV): It is a method under capital budgeting which includes the calculation of net present value of the project in which a company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after considering the discounted rate. Internal Rate of Return (IRR): It refers to the rate of return that is computed by the company to make a decision regarding the selection of a project for investment. This rate provides the basis for selection of projects with lower cost of capital and rejection of project with higher cost of capital.

Question

Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion? (b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which Project would you select?. Net Cash Flow B D. E -4,850 2,100 2,100 2,500 4,250 3,200 2,850 800 300 4,250 4,250 2,850 2,900 1,050 500 -835 -835 -835 -835 1,500 3.250 1,600 1,200 2,100 2,100

Answer 1

Question

Chapter 11, Problem 12P

Summary Introduction

To calculate: The IRR of the better project.

Introduction:

Net Present Value (NPV):

It is a method under capital budgeting which includes the calculation of net present value of the project in which a company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after considering the discounted rate.

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision regarding the selection of a project for investment. This rate provides the basis for selection of projects with lower cost of capital and rejection of project with higher cost of capital.

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Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion? (b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which Project would you select?. Net Cash Flow B D. E -4,850 2,100 2,100 2,500 4,250 3,200 2,850 800 300 4,250 4,250 2,850 2,900 1,050 500 -835 -835 -835 -835 1,500 3.250 1,600 1,200 2,100 2,100

NPV and IRR analysis of projects Thomas Company is considering two mutually exclusive projects. The firm, which has a cost of capital of 10%, has estimated its cash flows as shown in the following table: a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. a. The NPV of project A is $ (Round to the nearest cent.) Enter your answer in the answer box and then click Check Answer. 7 parts remaining Clear All Check Answer 10:3 5/11 Type here to search Cup

Project X Initial investment (CF) $500,000 Year (1) 1 2 3 4 5 Project Y $330,000 Cash inflows (CFt) $130,000 $120,000 $130,000 $200,000 $240,000 $150,000 $130,000 $75,000 $80,000 $60,000