Kerron Company is presented with the following two mutually exclusive projects.
ID: 2726408 • Letter: K
Question
Kerron Company is presented with the following two mutually exclusive projects. The required return for both projects is 19 percent. Year Project M Project N 0 –$136,000 –$369,000 1 64,900 145,500 2 82,900 194,000 3 73,900 130,500 4 59,900 124,000 Required: (a) What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) IRR Project M % Project N % (b) What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) NPV Project M $ Project N $
Explanation / Answer
Project M
NPV is the sum of present value of cash flows. PV is the PV factor times cash flows.
year
Cash flow
PV factor 19%
PV
0
-136000
1
-136000
1
64900
0.840336134
54537.82
2
82900
0.706164819
58541.06
3
73900
0.593415814
43853.43
4
59900
0.498668751
29870.26
NPV
29870.26
So NPV would be 29,870.26.
IRR can be calculated using IRR function in excel.
IRR= 37.61%
Project N
year
Cash flow
PV factor 19%
PV
0
-369000
1
-369000
1
145500
0.840336134
122268.9
2
194000
0.706164819
136996
3
130500
0.593415814
77440.76
4
124000
0.498668751
61834.93
NPV
61834.93
NPV = 61,834.93
IRR = 23.28%
year
Cash flow
PV factor 19%
PV
0
-136000
1
-136000
1
64900
0.840336134
54537.82
2
82900
0.706164819
58541.06
3
73900
0.593415814
43853.43
4
59900
0.498668751
29870.26
NPV
29870.26
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