Question

NPV

Your division is considering two investment projects, each of which requires an up-front expenditure of $17 million. You estimate that the investments will produce the following net cash flows:

Year	Project A		Project B
1	$  4,000,000		$20,000,000
2	10,000,000		10,000,000
3	20,000,000		6,000,000

1. What are the two projects' net present values, assuming the cost of capital is 5%? Do not round intermediate calculations. Round your answers to the nearest dollar.

   Project A: $  

   Project B: $  

   What are the two projects' net present values, assuming the cost of capital is 10%? Do not round intermediate calculations. Round your answers to the nearest dollar.

   Project A: $  

   Project B: $  

   What are the two projects' net present values, assuming the cost of capital is 15%? Do not round intermediate calculations. Round your answers to the nearest dollar.

   Project A: $  

   Project B: $  

2. What are the two projects' IRRs at these same costs of capital? Do not round intermediate calculations. Round your answers to two decimal places.

   Project A:      %

   Project B:      %

Answer 1

1. Project A

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$17,000,000.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital is 5%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $13,156,570.56.

Project B

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$17,000,000.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital is 5%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $16,300,939.42.

2. Project A

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$17,000,000.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital is 10%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $9,927,122.46.

Project B

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$17,000,000.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital is 10%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $13,954,169.80.

3. Project A

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$17,000,000.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital is 15%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $7,190,022.19.

Project B

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$17,000,000.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital is 15%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $11,897,838.42.

d.Project A

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$17,000,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 33.54%.

Project B

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$17,000,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 65.92%.

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