you are considering two independent project\'s project A and Project B. The init
ID: 2690185 • Letter: Y
Question
you are considering two independent project's project A and Project B. The initial cash outlay associated with project A is $50,000, and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annual free cash inflows from each projects are as follows: Project A initial outlay -$50,000, inflow year 1= 12,000, Inflow year 2= 12,000, inflow year 3= 12,000, inflow year 4= 12,000, inflow year 5= 12,000, inflow year 6= 12,000. Project B initial outlay -$70,000, inflow year 1 = 13,000, inflow year = 13,000, inflow year 3= 13,000, inflow year 4= 13,000, inflow year 5= 13,000, inflow year 6= 13,000.Explanation / Answer
Year
PROJECT A
PV---12%
Year
PROJECT B
PV---12%
0
-50000
-50,000
0
-70000
-70000
1
12000
10714.29
1
13000
11607.14
2
12000
9566.33
2
13000
10363.52
3
12000
8541.36
3
13000
9253.14
4
12000
7626.22
4
13000
8261.74
5
12000
6809.12
5
13000
7376.55
6
12000
60779.57
6
13000
6586.20
Total present
49336.89
Total present
53448.30
NPV
-663.11
NPV
-16551.70
IRR
11.53%
IRR
3.18%
PI
0.99
PI
0.76
Both the projects should be rejected
as they have negative NPV, IRR is less than the required rate of return and PI is less than 1.
Please rate for sure
Year
PROJECT A
PV---12%
Year
PROJECT B
PV---12%
0
-50000
-50,000
0
-70000
-70000
1
12000
10714.29
1
13000
11607.14
2
12000
9566.33
2
13000
10363.52
3
12000
8541.36
3
13000
9253.14
4
12000
7626.22
4
13000
8261.74
5
12000
6809.12
5
13000
7376.55
6
12000
60779.57
6
13000
6586.20
Total present
49336.89
Total present
53448.30
NPV
-663.11
NPV
-16551.70
IRR
11.53%
IRR
3.18%
PI
0.99
PI
0.76
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