IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method. To Calculate: The Internal Rate of return for each project

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Chapter 15, Problem 15.4.2P

To determine

Concept Introduction:

IRR:

Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

To Calculate:

The Internal Rate of return for each project

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Net present value method, internal rate of return method, and analysisThe management of Advanced Alternative Power Inc. is considering twocapital investment projects. The estimated net cash flows from eachproject are as follows: The wind turbines require an investment of $887,600, while the biofuelequipment requires an investment of $911,100. No residual value isexpected from either project.Instructions1. Compute the following for each project:a. The net present value. Use a rate of 6% and the present value of anannuity of $1 table appearing in this chapter (Exhibit 5).b. A present value index. Round to two decimal places.2. Determine the internal rate of return for each projectby (a)computing a present value factor for an annuity of $1 and (b) using thepresent value of an annuity of $1 table appearing in this chapter (Exhibit 5).3. What advantage does the internal rate of return method have over then net present value method in comparing projects ?

Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year 3 4 5 6 1 7 8 2 9 10 3 4 The wind turbines require an investment of $713,750, while the biofuel equipment requires an investment of $1,518,500. No residual value is expected from either project. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.909 0.893 0.870 0.833 2 1.690 1.626 1.528 2.106 0.943 1.833 2.673 3.465 4.212 Wind Turbines $250,000 250,000 250,000 250,000 3.170 3.791 4.917 4.355 5.582 4.868 6.210 5.335 6.802 5.759 7.360 6.145 Required: Biofuel Equipment 1.736 2.487 Amount to be invested Net present value $500,000 500,000 500,000 500,000 Wind Turbines Biofuel Equipment 2.402 3.037 Present value of annual net cash flows 2.283 2.855 3.605 3.353 4.111 3.785 4.564 4.160 4.968 4.487 5.328…

ABC Company has calculated the net present value of two investment opportunities but must decide which option to pursue: Project X: Present value of cash flows = $117,000 Investment = $100,000 Net present value = $17,000 Project Z: Present value of cash flows = $138,000 Investment = $120,000 Net present value = $18,000 Complete the following: Present value ratio of Project X = Present value ratio of Project Z = Decision = Invest in (Project X/Project Z)