W WK 9 CH 12 Est Cash Flows on Projects, 13 Weighing NPV & Other Capital Budgeti
ID: 2798655 • Letter: W
Question
W WK 9 CH 12 Est Cash Flows on Projects, 13 Weighing NPV & Other Capital Budgeting Crneria Queson8(or 9) 8. 400 poinms Compute the IRR static for Project E. The appropriate cost of capital is 8 percent (Do not round intermediate calculations and round your final answer to 2 decimal places Time Cash flow -$1,300 $470 $570 $580 $360 $160 Should the project be accepted or rejected? O Accepted O Rejected Hints References Bok &Resources; Hint 2 Hint Hint a5 O Type here to search Every Monday send VPP servdeter rev error
Explanation / Answer
a. NPV at 8% b. NPV at 15% Year Cash flow Discount Factor Present Value Year Cash flow Discount Factor Present Value a b c=1.08^-a b*c a b c=1.15^-a b*c 0 $ -1,300 1.000 $ -1,300 0 $ -1,300 1.000 $ -1,300 1 $ 470 0.926 $ 435 1 $ 470 0.870 $ 409 2 $ 570 0.857 $ 489 2 $ 570 0.756 $ 431 3 $ 580 0.794 $ 460 3 $ 580 0.658 $ 381 4 $ 360 0.735 $ 265 4 $ 360 0.572 $ 206 5 $ 160 0.681 $ 109 5 $ 160 0.497 $ 80 22% NPV $ 458 NPV $ 206 IRR = 8%+(15%-8%)*(458/(458-206)) = 20.72% Thus, IRR is 20.72% Project should be accepted. The reason behind acceptence is that IRR is more than cost of capital.
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