Homework Sourseork Chapter 10 Homework omew core 0 of 30 pts 1023 similar t
Solution
a.
NPV of project A: $18,867.08
Project A:
Year
Cash flows = CF
Df = 1/(1+8%)^Year
Present Value = CF x Df
0
-150,000.00
1.000000
-150,000.00
1
20,000.00
0.925926
18,518.52
2
30,000.00
0.857339
25,720.16
3
50,000.00
0.793832
39,691.61
4
60,000.00
0.735030
44,101.79
5
60,000.00
0.680583
40,834.99
Total PV = NPV =
18,867.08
Obtain IRR by trial error. We have to use different rates to get NPV = 0 for a particular rate. That rate is IRR.
IRR is rate at which NPV = 0
IRR =
11.90%
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Additional work for your reference:
Project B:
Year
Cash flows = CF
Df = 1/(1+8%)^Year
Present Value = CF x Df
0
-97,000.00
1.000000
-97,000.00
1
55,000.00
0.925926
50,925.93
2
40,000.00
0.857339
34,293.55
3
25,000.00
0.793832
19,845.81
4
5,000.00
0.735030
3,675.15
5
15,000.00
0.680583
10,208.75
Total PV = NPV =
21,949.18
IRR is rate at which NPV = 0
IRR =
19.69%
| Year | Cash flows = CF | Df = 1/(1+8%)^Year | Present Value = CF x Df |
| 0 | -150,000.00 | 1.000000 | -150,000.00 |
| 1 | 20,000.00 | 0.925926 | 18,518.52 |
| 2 | 30,000.00 | 0.857339 | 25,720.16 |
| 3 | 50,000.00 | 0.793832 | 39,691.61 |
| 4 | 60,000.00 | 0.735030 | 44,101.79 |
| 5 | 60,000.00 | 0.680583 | 40,834.99 |
| Total PV = NPV = | 18,867.08 |
