Question

Given the following cash flows for a capital project, calculate the NPV and IRR. The required...

Given the following cash flows for a capital project, calculate the NPV and IRR. The required rate of return is 8 percent.

Year

0

1

2

3

4

5
Cash Flows $-37004 $11550 $12750 $16800 $10700 $5350

NPV=4947. IRR=18.0%

NPV=4947. IRR=9.9%

NPV=9464. IRR=9.9%

NPV=9464. IRR=18.0%

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Homework Answers

Answer #1

a) We calculate the NPV using NPV function in excel and discount rate = 17.48%

NPV of product line expansion is $160973

NPV of production capacity expansion is $1200298

b.

Both projects should be accepted. This is because for both the projects the NPV is positive and the projects are not mutually exclusive.

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