Consider the following two projects: Net Cash Flow Each Period Initial Outlay 1 2 3 4 Project A $4,000,000 $2,003,000 $2,003,000 $2,003,000 $2,003,000 Project B $4,000,000 0 0 0 $11,000,000 Calculate the net present value of each of the above projects, assuming a 14 percent discount rate. What is the internal rate of return for each of the above projects? Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above. If 14 percent is the required rate of return, and these projects are independent, what decision should be made? If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
Consider the following two projects: Net Cash Flow Each Period Initial Outlay 1 2 3 4 Project A $4,000,000 $2,003,000 $2,003,000 $2,003,000 $2,003,000 Project B $4,000,000 0 0 0 $11,000,000 Calculate the net present value of each of the above projects, assuming a 14 percent discount rate. What is the internal rate of return for each of the above projects? Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above. If 14 percent is the required rate of return, and these projects are independent, what decision should be made? If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 4BE: Internal rate of return A project is estimated to cost 463,565 and provide annual net cash flows of...
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3) Consider the following two projects:
Net Cash Flow Each Period
Initial Outlay |
1 |
2 |
3 |
4 |
Project A $4,000,000 |
$2,003,000 |
$2,003,000 |
$2,003,000 |
$2,003,000 |
Project B $4,000,000 |
0 |
0 |
0 |
$11,000,000 |
- Calculate the
net present value of each of the above projects, assuming a 14 percent discount rate. - What is the
internal rate of return for each of the above projects? - Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above.
- If 14 percent is the required rate of return, and these projects are independent, what decision should be made?
- If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
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