You are asked to evaluate two projects X and Y. The cash flow for each is listed
ID: 2713849 • Letter: Y
Question
You are asked to evaluate two projects X and Y. The cash flow for each is listed below.
The firm’s cost of capital is 12%.
Year
X
Y
0
(10,000)
(10,000)
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500
Calculate the NPV of each project? [rounded to the nearest tens](4 points)
Which project would you select? (1 point)
c) Compute the IRR for project X. [up to two decimal places] (2 points) Based on the IRR criterion, should project X be accepted? (1 point)
Compute the IRR for project Y. [up to two decimal places] (2 points) Based on the IRR criterion, should project Y be accepted? (1 point)
Year
X
Y
0
(10,000)
(10,000)
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500
Explanation / Answer
Project X
Project Y
Project X because it has higher NPV and generates higher IRR.
Year 0 Year 1 Year 2 Year 3 Year 4 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Cash flow -10000 6500 3000 3000 1000 Discount rate % 12% present value of cashflows -10000 5803.6 2391.6 2135.3 635.5 NPV 966.01 IRR 18.03%Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.