Size Disparity Problem in Investment Proposals
Not what you're looking for?
See the attachment.
A company is considering which of two mutually exclusive projects it should undertake. The Finance Director thinks that the project with the higher NPV should be chosen whereas the Managing Director thinks that the one with the higher IRR should be undertaken especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10% and the net after tax cash flow of the projects are as follow:
Year (Cash Flow 000's ) 0 1 2 3 4 5
Project X (200) 35 80 90 75 20
Project Y (200) 218 10 10 4 3
Required:
a) Calculate the NPV and IRR of each project.
b) State with reasons, which project you would recommend.
c) Explain the inconsistency in the ranking of the two projects.
Purchase this Solution
Solution Summary
This solution shows step-by-step calculations in an Excel file to determine the NPV and IRR of the project, and also provides an analysis on which project should be recommended.
Solution Preview
a. (i) Calculation of NPV of each project ('000s)
Year DF @ 10% Project ...
Purchase this Solution
Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
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.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.