1) You are considering two independent projects, Project A and Project B. The initial cash outlay associated with project A is $ 50,000, and the initial cash outlay associated with project B is $ 70,000. The required rate of return on both projects is 12%. The expected annual free cash inflows from each project are as follows:

Project A Project B
Initial outlay - $ 50,000 - $ 70,000
Inflow year 1 12,000 13,000
Inflow year 2 12,000 13,000
Inflow year 3 12,000 13,000
Inflow year 4 12,000 13,000
Inflow year 5 12,000 13,000
Inflow year 6 12,000 13,000

Calulate the NPV, PI, and IRR for each project and indicate if the project should be accepted.

2)The State Spartan Corporation is considering two mutually exclusive projects. The free cash flows associated with those projects as follows:

Project A Project B
Initial Outlay - $50,000 -$50,000
Inflow year 1 15,625 0
Inflow year 2 15,625 0
Inflow year 3 15,625 0
Inflow year 4 15,625 0
Inflow year 5 15,625 0

The required rate of return on these projects is 10 percent.

A) What is each project's payback period?
B) What is each project's NPV?
C) What is each project's IRR?
D) What has caused the ranking conflict?
E) Which project should be accepted? Why?

Solution Summary

Excel file contains calculations of NPV ,IRR and payback period.

Just One, Inc. has two mutually exclusive investment projects P & Q, shown below. Suppose the interest rate is 10%.
Project Investment Year 1 Year 2 IRR NPV(r=10%)
P -200.00 140 128.25 22.4% 33.26
Q -100.00 80.00

Question -For independent projects, is it true that if PI>0, then NPV>0, and IRR>K?
Is my answer correct?
PI= (I+NPV) / I where I=Investment
if PI>0 then {(I+NPV) / I}>0 which means NPV> -I meaning NPV>0 where <0>
is the limit of I
NPV=0={C1 / (1+IRR)}-I={C1 / (1+k)}-I where C1 is the expected future net
cash flo

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow

In the â??Basic Venture Economicsâ? example, what would be the entrepreneurâ??s IRR if the investor was given 10% of the firm in exchange for the $250 investment? What would be the investor's IRR? If you were the investor, would you make the investment?

Please help me provide an explanation on how to answer these questions.
1. Consider the following two mutually exclusive projects:
Year CF (A) CF (B)
0 -2000 -100,000
1 1500 50,000
2 200 20,000
3 500 30,400
Whichever project you choose, if any, you require a 10 percent return on you

Please help figuring this problem out. Please show all formulas.
Project c0 c1 c2 c3
A -$20,000 +$8,000 +$8,000 +$8,000
B _$20,000 0 0 +$25,000.
a. At what interest rates would you prefer project

If you insulate your office for $10,000, you will save $1,000 a year in heating expenses. These savings will last forever.
a. What is the NPV of the investment when the cost of capital is 8%? 10%?
b. What is the IRR of the investment?
c. What is the payback period on this investment?
Show your work.

Investment Criteria. If you insulate your office for $10,000, you will save $1,000 a year in heating expenses. These savings will last forever.
a. What is the NPV of the investment when the cost of capital is 8 percent? 10 percent?
b. What is the IRR of the investment?
c. What is the payback period on this investment

A firm has the following investment opportunities:
Investment
NPV
IRR
Project A
Investment $150,000
NPV $30,000
IRR 14%
Project B
Investment $120,000
NPV $20,000
IRR 13%
Project C
Investment $100,000
NPV $25,000
IRR 12%
Project D
Investment $ 10,000
NPV $ 6,000
IRR 11%
If

Your company uses a 12% annual rate to discount cash flows for NPV. The following table presents the costs of each investment (negative values in time zero) and the expected cash flows for each investment each year.
Period A B C
0 -500 -2000 -500
1 200 400 300
2 300 500 200
3 400 800 100
4 500 900 0
5 0 1000 0
1