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    Calculating NPV and IRR for the given projects

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    XYZ is evaluating two mutually exclusive projects with the following net cash flows:

    Project A

    0 years=-$2000
    1 year =$300
    2 year=$500
    3 year=$800
    4 year=$1200

    Project B
    0 years=-$2000
    1 year =$1000
    2 year=$800
    3 year=$500
    4 year=$200

    1) XYZ's WACC is 10.3% and both projects have the same risk as the firms average project. calculate each projects NPV

    2) XYZ's CFO has instructed managers to use the IRR method when choosing between mutually exclusive projects. if managers choose the project with the highest IRR, how much value will be lost?

    © BrainMass Inc. brainmass.com October 10, 2019, 3:13 am ad1c9bdddf
    https://brainmass.com/business/net-present-value/calculating-npv-and-irr-for-the-given-projects-411782

    Solution Preview

    Please refer attached file for better clarity of tables.

    1) XYZ WACC is 10.3% and both projects have the same risk as the firms average project. calculate each projects NPV

    Project A
    Year End Cash Flow PV
    n Cn Cn/(1+10.3%)^n
    0 -2000 -2000.00
    1 300 271.99
    2 500 410.98
    3 800 ...

    Solution Summary

    Solution describes the steps to calculate NPV and IRR for the given projects.

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