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.

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

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

Which of the following statements is incorrect?
a. Assuming a project has normal cash flows, the NPV will be positive if the IRR is less than the cost of capital.
b. If the multiple IRR problem does not exist, any independent project acceptable by the NPV method will also be acceptable by the IRR method.
c. If IRR = k

XYZ Co. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial investment would be $2,500,000 and the project would generate incremental cash flows of $750,000 per year for six years. The cost of capital is 11 percent. Calculate the followin

A project that costs 3,000 will provide annual cash flows of $800 for each of the next 6 years. Is this project worth pursuing if the discount rate is 10%? How high can the discount rate be before you reject the project?

1) What is the internal rate of return (IRR) for a project whose intitial after tax cost is $5,000,000 and it is expected to provide after tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3, and $2,300,000 in year 4 ?
2) A firm is evaluating a proposal that has an initial investment

A firm is considering an investment in a new machine with a price of $2 million to replace its existing machine. The current machine has a book value of a $1 million and a market value of $9 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm

See attached file.
Problem 1
For each of the projects shown in the following table, calculate the internal rate of return (IRR). Then indicate, for each project, the maximum cost of capital that the firm could have and still find the IRR acceptable.
Project A Projec

Consider the following cash flows on two not mutually exclusive investments.
Year Investment A Investment B
0 -$100 -$100
1 44 69
2 56 51
3 65 32
The required return is 15%. The investments are not mutually exclusive.
a) Calculate the NPV and