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Considering Two Projects: Calculate NPV, IRR, Payback Period

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2. Your firm is considering two projects: Project A and Project B with the following cash flows:

-$75 0 -$60 0
$15 1 $20 1
$33 2 $13 2
$44 3 $15 3
$55 4 $18 4

a. Calculate the NPVs based on WACCs of 5% and 7%.
b. What are the IRRs based on the WACCs?
c. Calculate the payback period and discounted payback period.
d. Which projects should the firm accept if they are independent, based on the NPV, IRR, payback period, and discounted payback period methods? Assume your firm requires projects to break even in three years.

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Solution Summary

The solution considers two projects and calculates NPV, IRR and payback period.

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Caledonia: calculate payback period, NPV, IRR, and ranking conflict

I do not understand the NPV, or IRR. I have to answer these questions in an excel spreadsheet.

File is attached.

12. Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows:
0 −$100,000 −$100,000
1 32,000 0
2 32,000 0
3 32,000 0
4 32,000 0
5 32,000 $200,000

The required rate of return on these projects is 11 percent.

a. What is each project's payback period?
b. What is each project's net present value?
c. What is each project's internal rate of return?
d. What has caused the ranking conflict?
e. Which project should be accepted? Why?

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