Use the following Table for questions 4-6 . Year Project A Project B 0 -17500 -1
ID: 409456 • Letter: U
Question
Use the following Table for questions 4-6.
Year
Project A
Project B
0
-17500
-12500
1
2500
7500
2
3500
3500
3
5500
2500
4
3500
1500
5
2000
500
4. Calculate NPV for both projects. Which project would be a better value? (All things equal.) Assume the cost of capital is 14%.
Project A: ________________ Project B: __________________
5. Calculate IRR for both projects. Which project would be a better value? (All things equal.) Assume the cost of capital is 7%
Project A: ________________ Project B: __________________
Year
Project A
Project B
0
-17500
-12500
1
2500
7500
2
3500
3500
3
5500
2500
4
3500
1500
5
2000
500
Explanation / Answer
NPV for Project 1
NPV={(2500/(1+.14)1)+(3500/(1+.14)2)+(5500/(1+.14)3)+(3500/(1+0.14)4)+(2000/(1+0.14)5)}-17500
= 2192.98+2713.17+3716.21+2083.33+1041.66-17500
=-7835.98
NPV for Project 2
NPV{(7500/(1+.14)1)+(3500/(1+.14)2)+(2500/(1+.14)3)+(1500/(1+0.14)4)+(500/(1+0.14)5)}-12500
=6578.94+2713.17+1689.18+892.85+260.41-12500
=-365.45
Her for both projects the NPV values are negative.
NPV for Project 1
NPV={(2500/(1+.14)1)+(3500/(1+.14)2)+(5500/(1+.14)3)+(3500/(1+0.14)4)+(2000/(1+0.14)5)}-17500
= 2192.98+2713.17+3716.21+2083.33+1041.66-17500
=-7835.98
NPV for Project 2
NPV{(7500/(1+.14)1)+(3500/(1+.14)2)+(2500/(1+.14)3)+(1500/(1+0.14)4)+(500/(1+0.14)5)}-12500
=6578.94+2713.17+1689.18+892.85+260.41-12500
=-365.45
Her for both projects the NPV values are negative.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.