# Capital Budgeting : NPW and IRR methods

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University Athletic Wear (UAW) is evaluating several new product proposals. Resources are available for any or all of the products . UAW uses a MARR of 15% and a time span of 5 years for project evaluations. Determine which new product(s) should be chosen using Internal rate of return criteria.

MARR=15%

Investment Cash Flows

Project 1 2 3 4 5

Shorts ($450,000) $80,000 $120,000 $150,000 $150,000 $150,000

Shirts ($200,000) $50,000 $70,000 $80,000 $80,000 $80,000

Jackets ($500,000) $150,000 $150,000 $150,000 $150,000 $150,000

a. Determine which new product(s) should be chosen using the Internal rate of return criteria.

b. Determine which new product(s) should be chosen using the present worth criteria.

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##### Solution Summary

Solution chooses the appropriate investment proposal/s.

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Please refer attached file for better clarity of tables and formulas.

a Determine which new product(s) should be chosen using the Internal rate of return criteria.

Year Shorts Shirts Jackets

Initial ($450,000) ($200,000) ($500,000)

1 $80,000 $50,000 $150,000

2 $120,000 $70,000 $150,000

3 $150,000 $80,000 $150,000

4 $150,000 $80,000 $150,000

5 $150,000 $80,000 $150,000

We can use IRR function in MS Excel to IRR for the projects

IRR for "Shorts"=12.35% =IRR(B5:B10)

IRR for "Shirts"=21.52% =IRR(C5:C10)

IRR for "Jackets"=15.24% =IRR(D5:D10)

IRR is above 15% for ...

###### Education

- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India

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