Question

"A firm is considering two projects with the following cash flows and internal rates of return....

"A firm is considering two projects with the following cash flows and internal rates of return. If the firm's MARR is 12%, should it select project A, project B, or neither? It cannot select both the projects.
Project A
Year 0: -7
Year 1: 0
Year 2: 9
Project B
Year 0: X
Year 1: 0
Year 2: 32
The IRR for Project A is 13.39% and that of Project B is 20.29%.
Enter the net present worth of the preferred project. You will need to solve for X first. ENTER '0' if neither project is preferred."

Homework Answers

Answer #1

For project B,

IRR (R) = 20.29%

Value of X = 0/(1+20.29%) + 32/(1+20.29%)^2

Value of X = 22.115 (-ve)

Now,

At MARR = 12%

For project A:

NPW of the project A = 0 + 9/(1+12%)^2 – 7

NPW of the project A = .175

For project B:

NPW of the project B = 0 + 32/(1+12%)^2 – 22.115

NPW of the project B = 3.395

Since net present worth of the project B is 3.395 that is higher than that the net present worth of the project A.

So, net present worth of the selected project B = 3.395

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
"Potential projects A and B have the following cash flows. Use i = 13.4% annual rate...
"Potential projects A and B have the following cash flows. Use i = 13.4% annual rate compounded annually. Enter the Net Present Worth (NPW) of the preferred project. If neither project should be selected, enter 0. Project A Year 0: -$4,700 Year 1: $2,600 Year 2: $2,100 Year 3: $900 Project B Year 0: -$4,000 Year 1: $2,800 Year 2: $1,500 Year 3: $400"
compute the internal rate of return for the cash flows of the following two projects (Do...
compute the internal rate of return for the cash flows of the following two projects (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.): year project A PROJECT B 0 -6800 -4400 1 2600 1500 2 3400 2900 3 2200 1800
Which of the following statements is correct: A. projects with unconventional cash flows have multiple internal...
Which of the following statements is correct: A. projects with unconventional cash flows have multiple internal rates of return B. if 2 projects are mutually exclusive, you should select the project with the shortest payback period C. If the IRR exceeds the required return, the profitability index will be less than 1.0 D. the Profitability index will be greater than 1.0 when the net present value is negative E. when the internal rate of return is greater than the required...
"A manufacturing firm is considering two mutually exclusive alternatives given below. The net cash flows in...
"A manufacturing firm is considering two mutually exclusive alternatives given below. The net cash flows in dollars for years 0 through 2 for Project A is: -4,200 2,500 2,100 The net cash flow in dollars for years 0 through 2 for Project B is: -7,400 4,900 5,700 Determine which project is a better choice if MARR = 11%. Enter the IRR as a percentage between 0 and 100 for the project that is a better choice. If neither project should...
Tara is evaluating two mutually exclusive capital budgeting projects that have the following characteristics: Cash Flows...
Tara is evaluating two mutually exclusive capital budgeting projects that have the following characteristics: Cash Flows Year Project Q Project R 0 $(4,000) $(4,000) 1 0 3,500 2 5,000 2,100 IRR 11.8% 28.40% If the firm's required rate of return (r) is 10 percent, which project should be purchased? a. Both projects should be purchased, because the IRRs for both projects exceed the firm's required rate of return. b. Neither project should be accepted, because their NPVs are too small...
Tara is evaluating two mutually exclusive capital budgeting projects that have the following characteristics: Cash Flows...
Tara is evaluating two mutually exclusive capital budgeting projects that have the following characteristics: Cash Flows Year Project Q Project R 0 $(4,000) $(4,000) 1 0 3,500 2 5,000 2,100 IRR 11.8% 28.40% If the firm's required rate of return (r) is 10 percent, which project should be purchased? a. Both projects should be purchased, because the IRRs for both projects exceed the firm's required rate of return. b. Neither project should be accepted, because their NPVs are too small...
You are considering two independent projects with the following cash flows. The required return for both...
You are considering two independent projects with the following cash flows. The required return for both projects is 10%. Given this information, which one of the following statements is correct? Year  Project A  Project B 0    -950,000  -125,000 1      330,000    55,000 2      400,000    50,000 3      450,000      50,000 You should accept project B because it has the higher IRR and reject project A You should accept project A because it has the higher NPV and you can not accept both projects You should accept...
The following are the cash flows of two projects: Year Project A Project B 0 -$...
The following are the cash flows of two projects: Year Project A Project B 0 -$ 230 -$ 230 1 110 130 2 110 130 3 110 130 4 110 What are the internal rates of return on projects A and B? (Enter your answers as a percent rounded to 2 decimal places.)
You are considering the following two mutually exclusive projects with the following cash flows:                           &nbsp
You are considering the following two mutually exclusive projects with the following cash flows:                                                                                  Project A                                  Project B                                                             Year    Cash Flow                   Year    Cash Flow                                                             0          -$75,000                         0       -$70,000                                                             1          $19,000                         1       $10,000                                                             2          $48,000                         2       $16,000                                                             3          $12,000                         3       $72,000                        Required rate of return                     10 %                                        13 %                             Calculate the NPV, IRR,...
Kilroy, Inc. is considering two mutually exclusive projects. The cash flows of the projects are as...
Kilroy, Inc. is considering two mutually exclusive projects. The cash flows of the projects are as follows: Year Project A Project B 0 -$2,000,000 -$2,000,000 1 500,000 2 500,000 3 500,000 4 500,000 5 500,000 6 500,000 7 500,000 5,650,000 a. Compute the NPV and IRR for the above two projects, assuming a 13% required rate of return. NPV for project A= b. Discuss any potential conflict in evaluating these candidate projects. c. What decision should be made regarding these...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT