Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Senior management asks you to recommend a decision on which project(s) to accept based on the cash flow forecasts provided.

Relevant information:

  1. The firm uses a 3-year cutoff when using the payback method.
  2. The hurdle rate used to evaluate capital budgeting projects is 15%.

The cash flows for projects A, B and C are provided below.

 

Project A

Project B

Project C

Year 0

-30,000

-20,000

-50,000

Year 1

0

4,000

20,000

Year 2

7,000

5,000

20,000

Year 3

20,000

6,000

20,000

Year 4

20,000

7,000

5,000

Year 5

10,000

8,000

5,000

Year 6

5,000

9,000

5,000

  • Calculate the internal rate of return (IRR) for each project in excel
  • Which projects would you accept based on the IRR criterion?
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