You are considering investment in the following projects. Assume that your discount rate is 12% per year for both projects. Project A’s cash flows Year 0 Year 1 Year 2 Year 3 Year 4 -$12,000 $7,000 $3,000 $2,000 $1,500 Project B’s cash flows Year 0 Year 1 Year 2 Year 3 Year 4 -$11,000 $6,000 $2,500 $1,500 $1,200 (a) Calculate IRR for project A and IRR for project B. (b) Calculate NPV for project A and NPV for project B. (c) If projects A and B are mutually exclusive which project will you accept, if any?
You are considering investment in the following projects. Assume that your discount rate is 12% per year for both projects. Project A’s cash flows Year 0 Year 1 Year 2 Year 3 Year 4 -$12,000 $7,000 $3,000 $2,000 $1,500 Project B’s cash flows Year 0 Year 1 Year 2 Year 3 Year 4 -$11,000 $6,000 $2,500 $1,500 $1,200 (a) Calculate IRR for project A and IRR for project B. (b) Calculate NPV for project A and NPV for project B. (c) If projects A and B are mutually exclusive which project will you accept, if any?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 16EA: Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in...
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You are considering investment in the following projects. Assume that your discount rate is 12% per year for both projects.
Project A’s cash flows
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
-$12,000 |
$7,000 |
$3,000 |
$2,000 |
$1,500 |
Project B’s cash flows
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
-$11,000 |
$6,000 |
$2,500 |
$1,500 |
$1,200 |
(a) Calculate IRR for project A and IRR for project B.
(b) Calculate NPV for project A and NPV for project B.
(c) If projects A and B are mutually exclusive which project will you accept, if any?
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