Purchase Solution

NPV and IRR : explained

Not what you're looking for?

Ask Custom Question

NPV/IRR. Consider projects A and B.

Cash Flows, Dollars
Project C0 C1 C2 NPV at 10%
A -30,000 21,000 21,000 +$6,446
B -50,000 33,000 33,000 + 7,273

Calculate IRRs for A and B. Which project does the IRR rule suggest is best? Which project is really best?

Purchase this Solution

Solution Summary

Calculates NPV and IRR of two projects.

Solution Preview

NPV/IRR. Consider projects A and B.

Cash Flows, Dollars
Project C0 C1 C2 NPV at 10%
A -30,000 21,000 21,000 +$6,446
B -50,000 33,000 33,000 + 7,273

Calculate IRRs for A and B. Which project does the IRR rule suggest is best? Which project is really best?

Since the cash flows are the same over the years (annuity) we can use PVIFA factor to calculate NPV
PVIFA= Present Value Interest Factor for an Annuity
It can be read from tables or calculated using the following equations
PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%

Project A
Initial investment= $30,000
Annual cash flow= $21,000

We first calculate ...

Purchase this Solution


Free BrainMass Quizzes
Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.