19. The following cash flows are for two mutually exclusive projects C and D. Th

Question

19. The following cash flows are for two mutually exclusive projects C and D. The CEO of the firm prefers the IRR method, but the CFO of the firm prefers the NPV method. Assuming a cost of capital is 18 percent, which project (s) should you choose, if any? YearCash Flows C Cash Flows D $7,000 5,000 4,000 2,000 $15,000 7,000 0 28,000 9,000 a. Bsed on NPV, pick Project C b. Based on IRR, pick Project D C. Based on NPV, pick both projects d. Based on IRR, pick both projects e. Based on MIRR, pick Project D

Explanation / Answer

Correct answer is A, because project C has higher NPV

Project C

Using Financial Calculator

CF0=-15000       (press enter)   Press

CF1=7000       (press enter) Press

F01=1                (press enter) Press

CF2= 8000   (press enter) Press

F02=1              (press enter) Press

CF3=   9000   (press enter) Press

F03=1            (press enter) Press

Press NPV

Interest=18 (press enter) Press

Press CPT

NPV=2155.36

Project D

Using Financial Calculator

CF0=-7000       (press enter)   Press

CF1=5000       (press enter) Press

F01=1                (press enter) Press

CF2= 4000   (press enter) Press

F02=1              (press enter) Press

CF3= 2000   (press enter) Press

F03=1            (press enter) Press

Press NPV

Interest=18 (press enter) Press

Press CPT

NPV=1327.29

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