18.) Lithium, Inc. is considering two mutually exclusive projects, A and B. Proj

Question

18.) Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. The firm's required rate of return for these projects is 10%. The net present value for Project A is

Select one:

a. $26,074.

b. $12,358.

c. $16,947.

d. $19,458.

20.) Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%. The modified internal rate of return for Project B is Select one:

a. 22.80%. b. 17.84%. c. 19.75%. d. 18.52%.

Explanation / Answer

18.)

Net present value for Project A = -95000 + 65000/1.1 + 75000/1.1^2

Net present value for Project A = $ 26074

Answer

a. $26,074.

20.)

Project B

MIRR = (FV of Cash Inflow/PV of Cash Outflow)^(1/n) - 1

FV of Cash Inflow = 64000*1.1^3 + 67000*1.1^2 + 56000*1.1 + 45000

FV of Cash Inflow = 272854

PV of Cash Outflow = 120000

n = 4

MIRR = (272854/120000)^(1/4) -1

MIRR = 22.80%

Answer

a. 22.80%

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