Adequate information: Discount rate= 15% Initial investment of Project NP-30 = $735,000 Cash flow per year from Project NP-30 for next 5 years = $239,000 Initial investment of Project NX-20 = $460,000 Cash flow from Project NX-20 at Year 1= $130,000 Cash flow from Project NX-20 at Year 2 = $143,000 Cash flow from Project NX-20 at Year 3 = $157,300 Cash flow from Project NX-20 at Year 4 = $173,030 Cash flow from Project NX-20 at Year 5 = $190,333 To compute: Payback period, IRR , PI, and NPV of both the projects and their implications. Introduction: IRR is the rate that produces zero NPV, that is, the present value of aggregate cash inflows is the same as the present value of aggregate cash outflows. It is also known as the economic rate of return .

Question

Want to see the full answer?

Answer 1

Question

Chapter 5, Problem 19QAP

Summary Introduction

Adequate information:

Discount rate= 15%

Initial investment of Project NP-30 = $735,000

Cash flow per year from Project NP-30 for next 5 years = $239,000

Initial investment of Project NX-20 = $460,000

Cash flow from Project NX-20 at Year 1= $130,000

Cash flow from Project NX-20 at Year 2 = $143,000

Cash flow from Project NX-20 at Year 3 = $157,300

Cash flow from Project NX-20 at Year 4 = $173,030

Cash flow from Project NX-20 at Year 5 = $190,333

To compute: Payback period, IRR, PI, and NPV of both the projects and their implications.

Introduction: IRR is the rate that produces zero NPV, that is, the present value of aggregate cash inflows is the same as the present value of aggregate cash outflows. It is also known as the economic rate of return.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume that the discount rate for Nagano Golf is 17 percent Project A: Nagano NP-30. Professional clubs that will take an initial investment of $995,000 at time 0. Next five years (years 1-5) of sales will generate a consistent cash flow of $452,000 per year. Introduction of new product at year 6 will terminate further cash flows from this project. Project B. Nagano NX-20. High-end amateur clubs that will take an initial Investment of $730,000 at time 0. Cash flow at year 1 is $300,000. In each subsequent year, cash flow will grow at 10 percent per year. Introduction of new product at year 6 will terminate further cash flows from this project. Year SAWNTO 1 2 3 4 5 NP-30 -$995,000 452,000 452,000 452,000 452,000 452,000 NX-20 -$730,000 300,000 330,000 363,000 399, 300 439, 230 Complete the following table: (Do not round intermediate calculations. Round the "PI" answers to 3 decimal places and…

Calculate the Profitability Index for Project A A firm is considering the following mutually exclusive investment projects. Project A requires an initial outlay of $500 and will return $120 per year for the next seven years. Project B requires an initial outlay of $5,000 and will return $1,350 per year for the next five years. The required rate of return is 10%. Use th Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a b с 1.1684 1.2973 1.3476 d 1.4786

There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $31,500 $22,500 $5,500 $59,500 Beta Project 7,500 24,000 28,500 60,000 (Click here to see present value and future value tables) A. If the discount rate is 10%, compute the NPV of each project. Round your present value factor to three decimal places and final answer to answer to 2 decimal places. Alpha Project $ Beta Project $ B. Which project should be recommended. Alpha v