Your division is considering two investment projects, each of which requires an

Question

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:

What are the two projects' net present values, assuming the cost of capital is 5%? 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%? 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%? Round your answers to the nearest dollar.
Project A $  
Project B $  

What are the two projects' IRRs at these same costs of capital? Round your answers to two decimal places.
Project A     %
Project B     %

Explanation / Answer

Statement showing calculation of Present Value Project A Project B Particulars Time PVF@5% Amount PV Amount PV Cash Outflows                               -                                            1.00      (17,000,000.00)                (17,000,000.00)                (17,000,000.00)                (17,000,000.00) PV of Cash Outflows                (17,000,000.00)                (17,000,000.00) Cash Inflows 1.00                                     0.9524          6,000,000.00                     5,714,285.71                   20,000,000.00                   19,047,619.05 Cash Inflows                          2.00                                     0.9070        10,000,000.00                     9,070,294.78                   10,000,000.00                     9,070,294.78 Cash Inflows                          3.00                                     0.8638        20,000,000.00                   17,276,751.97                     7,000,000.00                     6,046,863.19 PV of Cash Inflows                   32,061,332.47                   34,164,777.02 NPV                   15,061,332.47                   17,164,777.02 Statement showing calculation of Present Value Project A Project B Particulars Time PVF@10% Amount PV Amount PV Cash Outflows                               -                                            1.00      (17,000,000.00)                (17,000,000.00)                (17,000,000.00)                (17,000,000.00) PV of Cash Outflows                (17,000,000.00)                (17,000,000.00) Cash Inflows 1.00                                     0.9091          6,000,000.00                     5,454,545.45                   20,000,000.00                   18,181,818.18 Cash Inflows                          2.00                                     0.8264        10,000,000.00                     8,264,462.81                   10,000,000.00                     8,264,462.81 Cash Inflows                          3.00                                     0.7513        20,000,000.00                   15,026,296.02                     7,000,000.00                     5,259,203.61 PV of Cash Inflows                   28,745,304.28                   31,705,484.60 NPV                   11,745,304.28                   14,705,484.60 Statement showing calculation of Present Value Project A Project B Particulars Time PVF@15% Amount PV Amount PV Cash Outflows                               -                                            1.00      (17,000,000.00)                (17,000,000.00)                (17,000,000.00)                (17,000,000.00) PV of Cash Outflows                (17,000,000.00)                (17,000,000.00) Cash Inflows 1.00                                     0.8696          6,000,000.00                     5,217,391.30                   20,000,000.00                   17,391,304.35 Cash Inflows                          2.00                                     0.7561        10,000,000.00                     7,561,436.67                   10,000,000.00                     7,561,436.67 Cash Inflows                          3.00                                     0.6575        20,000,000.00                   13,150,324.65                     7,000,000.00                     4,602,613.63 PV of Cash Inflows                   25,929,152.63                   29,555,354.65 NPV                     8,929,152.63                   12,555,354.65 Statement showing calculation of Present Value Project A Particulars Time PVF@38.8% Amount PV Cash Outflows                               -                                            1.00      (17,000,000.00)                (17,000,000.00) PV of Cash Outflows                (17,000,000.00) Cash Inflows 1.00                                     0.7205          6,000,000.00                     4,322,766.57 Cash Inflows                          2.00                                     0.5191        10,000,000.00                     5,190,641.90 Cash Inflows                          3.00                                     0.3740        20,000,000.00                     7,479,311.09 PV of Cash Inflows                   16,992,719.55 NPV                           (7,280.45) IRR is approx 38.8% Statement showing calculation of Present Value Project B Particulars Time PVF@67.5% Amount PV Cash Outflows                               -                                            1.00      (17,000,000.00)                (17,000,000.00) PV of Cash Outflows                (17,000,000.00) Cash Inflows 1.00                                     0.5970        20,000,000.00                   11,940,298.51 Cash Inflows                          2.00                                     0.3564        10,000,000.00                     3,564,268.21 Cash Inflows                          3.00                                     0.2128          7,000,000.00                     1,489,544.92 PV of Cash Inflows                   16,994,111.64 NPV                           (5,888.36) IRR is approx 67.5%

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