(Net present value, profitability index, and internal rate of return calculations). 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 percent. The expected annual free cash flows from each project are as follows: YEAR PROJECT A PROJECT B 0 -$50,000 -$70,000 1 12,000 13,000 2 12,000 13,000 3 12,000 13,000 4 12,000 13,000 5 12,000 13,000 6 12,000 13,000 Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted.

Cornerstones of Cost Management (Cornerstones Series)
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Author:Don R. Hansen, Maryanne M. Mowen
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Chapter19: Capital Investment
Section: Chapter Questions
Problem 22E
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  1. (Net present value, profitability index, and internal rate of return calculations). 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 percent. The expected annual free cash flows from each project are as follows:

YEAR

PROJECT A

PROJECT B

0

-$50,000

-$70,000

1

12,000

13,000

2

12,000

13,000

3

12,000

13,000

4

12,000

13,000

5

12,000

13,000

6

12,000

13,000

Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted.

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