FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Langley Company is considering two capital investments. Both investments have an initial cost of $10,000,000 and total net cash inflows of$16,000,000 over 10 years. Langley requires a 10​% rate of return on this type of investment. Expected net cash inflows are as​ followsI can't seem to understand how to do this question! Thank you :)

Data table
Year
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Total
Plan Alpha Plan Beta
1,600,000 $
1,600,000
1,600,000
2,300,000
1,600,000
3,000,000
1,600,000
2,300,000
1,600,000
1,600,000
1,600,000
1,200,000
1,600,000
1,100,000
1,600,000
1,000,000
1,600,000
900,000
1,600,000
1,000,000
$ 16,000,000 $ 16,000,000
Print
I
Done
X
any is considering two capital investments. Both investments have an initial cost of $10,000,000
ash inflows of $16,000,000 over 10 years. Langley requires a 10% rate of return on this type of
pected net cash inflows are as follows:
Requirements
1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any,
should the company pursue?
2. Explain the relationship between NPV and IRR. Based on this relationship and
the company's required rate of return, are your answers as expected in
Requirement 1? Why or why not?
3. After further negotiating, the company can now invest with an initial cost of
$9,500,000 for both plans. Recalculate the NPV and IRR. Which plan, if any,
should the company pursue?
Print
-
Done
X
expand button
Transcribed Image Text:Data table Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Plan Alpha Plan Beta 1,600,000 $ 1,600,000 1,600,000 2,300,000 1,600,000 3,000,000 1,600,000 2,300,000 1,600,000 1,600,000 1,600,000 1,200,000 1,600,000 1,100,000 1,600,000 1,000,000 1,600,000 900,000 1,600,000 1,000,000 $ 16,000,000 $ 16,000,000 Print I Done X any is considering two capital investments. Both investments have an initial cost of $10,000,000 ash inflows of $16,000,000 over 10 years. Langley requires a 10% rate of return on this type of pected net cash inflows are as follows: Requirements 1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue? 2. Explain the relationship between NPV and IRR. Based on this relationship and the company's required rate of return, are your answers as expected in Requirement 1? Why or why not? 3. After further negotiating, the company can now invest with an initial cost of $9,500,000 for both plans. Recalculate the NPV and IRR. Which plan, if any, should the company pursue? Print - Done X
Langley Company is considering two capital investments. Both
investments have an initial cost of $10,000,000 and total net cash inflows
of $16,000,000 over 10 years. Langley requires a 10% rate of return on
this type of investment. Expected net cash inflows are as follows:
(Click the icon to view the expected net cash inflows.)
Read the requirements.
Requirement 1. Use Excel to compute the NPV and IRR of the two
plans. Which plan, if any, should the company pursue? (Use parentheses
or a minus sign for a negative NPV. Round the NPV calculations to the
nearest whole dollar and the IRR calculations to two decimal places,
X.XX%.)
The NPV (net present value) of Plan Alpha is
The NPV (net present value) of Plan Beta is
00
expand button
Transcribed Image Text:Langley Company is considering two capital investments. Both investments have an initial cost of $10,000,000 and total net cash inflows of $16,000,000 over 10 years. Langley requires a 10% rate of return on this type of investment. Expected net cash inflows are as follows: (Click the icon to view the expected net cash inflows.) Read the requirements. Requirement 1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue? (Use parentheses or a minus sign for a negative NPV. Round the NPV calculations to the nearest whole dollar and the IRR calculations to two decimal places, X.XX%.) The NPV (net present value) of Plan Alpha is The NPV (net present value) of Plan Beta is 00
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