Beach Inc., is evaluating investment opportunities and should decide between two mutually exclusive projects: Delta or Beta. Both projects require the same initial investments 12 million and generate different cash flows as follow: Delta project generates 2.8 million per year in a perpetuity Beta project generates 1.6 million in perpetuity growing at 2.1% (forever) a) If Beach Inc., is using the IRR to make her final decision, calculate the IRR of each of the following project. b) Calculate the NPV of both project if the required rate is 11% c) Calculate the crossover rate (If existing)
Beach Inc., is evaluating investment opportunities and should decide between two mutually exclusive projects: Delta or Beta. Both projects require the same initial investments 12 million and generate different cash flows as follow: Delta project generates 2.8 million per year in a perpetuity Beta project generates 1.6 million in perpetuity growing at 2.1% (forever) a) If Beach Inc., is using the IRR to make her final decision, calculate the IRR of each of the following project. b) Calculate the NPV of both project if the required rate is 11% c) Calculate the crossover rate (If existing)
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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Transcribed Image Text:Problem 1
Beach Inc., is evaluating investment opportunities and should decide between two mutually
exclusive projects: Delta or Beta. Both projects require the same initial investments 12 million
and generate different cash flows as follow:
Delta project generates 2.8 million per year in a perpetuity
Beta project generates 1.6 million in perpetuity growing at 2.1% (forever)
a) If Beach Inc., is using the IRR to make her final decision, calculate the IRR of each of the
following project.
b) Calculate the NPV of both project if the required rate is 11%
c) Calculate the crossover rate (If existing)
d) Graph the NPV function of both project and discuss (You can use excel and then insert your
Graph here)
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