Mandalay Enterprises is considering two mutually exclusive projects. The project

Question

Mandalay Enterprises is considering two mutually exclusive projects. The projected net cash flows for Projects A and B are summarized in the following table.

Net Cash Flows (CFt) for Projects A and B

A. Calculate the NPV for both projects if the cost of capital is 15 percent.

B. Based on your answer to part A, which project should be accepted? Calculate the IRR for both projects.

C. Based on your answer to part C, which project should be accepted?

D. If Projects A and B are independent and the cost of capital is 18.5 percent, then which project(s) should be accepted?

ENGINEERING ECONOMICS

Year Project A Project B 0 -27,000 -20,000 1 8,000 6,500 2 9,000 6,500 3 10,000 6,500 4 10,000 6,500 5 6,000 6,500

Explanation / Answer

Year Project A Project B 0 -27,000 -20,000 1 8,000 6,500 2 9,000 6,500 3 10,000 6,500 4 10,000 6,500 5 6,000 6,500 1 NPV $1,772 $1,556 2 Project A is better as Higher NPV 3 IRR 18% 19% 4 Project B is better as Higher IRR 5 if Projects A and B are independent projects then both projects should be accepted

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