CAPITAL BUDGETING CRITERIA A firm with a 14% WACC is evaluating two projects for this year’s capital budget. After-tax cash flows, including depreciation, are as follows: Time 0 1 2 3 4 5 Project A -6,000 $2,000 $2,000 $2,000 $2,000 $2,000 Project B -18,000 $5,600 $5,600 $5,600 $5,600 $5,600 d.Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR? e.Which calculation would you recommend in your evaluation—NPV or IRR? Why?

CAPITAL BUDGETING CRITERIA A firm with a 14% WACC is evaluating two projects for this year’s capital budget. After-tax cash flows, including depreciation, are as follows: Time 0 1 2 3 4 5 Project A -6,000 $2,000 $2,000 $2,000 $2,000 $2,000 Project B -18,000 $5,600 $5,600 $5,600 $5,600 $5,600 d.Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR? e.Which calculation would you recommend in your evaluation—NPV or IRR? Why?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 8PROB

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