As a newly employed Chief Finance Officer of EKM School Complex, you are offered the following two mutually exclusive projects. Cash Flows(GHS) Year Project A Project B 0 -5,000 -100,000 1 4,500. 65,000 2. 4,500 65,000 a) What are the IRRs of these two projects? (Use the formula provided in the appendix) b) If you are told only the IRRs of the projects, which would you choose? c) What did you ignore when you made your decision in part (b)? d) According to the NPV rule, which one of these two projects should be pursued? Assume appropriate discount rate of 15%. Appendix For all IRR calculations please use the formula below IRR = a+(b-a)[NPV@a/NPV@a - NPV@b]
As a newly employed Chief Finance Officer of EKM School Complex, you are offered the following two mutually exclusive projects. Cash Flows(GHS) Year Project A Project B 0 -5,000 -100,000 1 4,500. 65,000 2. 4,500 65,000 a) What are the IRRs of these two projects? (Use the formula provided in the appendix) b) If you are told only the IRRs of the projects, which would you choose? c) What did you ignore when you made your decision in part (b)? d) According to the NPV rule, which one of these two projects should be pursued? Assume appropriate discount rate of 15%. Appendix For all IRR calculations please use the formula below IRR = a+(b-a)[NPV@a/NPV@a - NPV@b]
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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As a newly employed Chief Finance Officer of EKM School Complex, you are offered the following two mutually exclusive projects.
Cash Flows(GHS)
Year Project A Project B
0 -5,000 -100,000
1 4,500. 65,000
2. 4,500 65,000
a) What are the IRRs of these two projects? (Use the formula provided in the appendix)
b) If you are told only the IRRs of the projects, which would you choose?
c) What did you ignore when you made your decision in part (b)?
d) According to the NPV rule, which one of these two projects should be pursued?
Assume appropriate discount rate of 15%.
Appendix
For all IRR calculations please use the formula below
IRR = a+(b-a)[NPV@a/NPV@a - NPV@b]
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