Posted by: storm93 February 3, 2006
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here is couple problem i was confused to get exact IRR, may be method that i did wrong.
1. The projected cash flows for two mutually exclusive projects are as follows:
Year : 0
Project A=($150,000)
Project B= ($150,000)
Year :1
Project A = 0
Project B = 50,000
Year :2
Project A = 0
Project B =50,000
Year :3
Project A = 0
Project B =50,000
Year :4
Project A= 0
Project B =50,000
Year :5
Project A =250,000
Project B=50,000
If the cost of capital is 10%, the decidedly more favorable project is:
a. project B with an NPV of $39,539 and an IRR of 19.9%
b. project A with an NPV of $5,230 and an IRR of 10.8%
c. project A with an NPV of $39,539 and an IRR of 10.8%
d. project B with an NPV of $5,230 and an IRR of 19.9%
2. The following projects are all characterized by a single initial cash outflow (the initial investment) followed by a series of cash inflows. Rank them based on profitability index.
Project A
Investment:$160,000
NPV: $30,000
Project B
Investment: $120,000
NPV $15,000
Project C
Investment:$110,000
NPV:$25,000
Project D
Investment: $200,000
NPV: $40,000
a. A, C, B, D
b. C, D, A, B
c. D, A, C, B
d. B, D, C, A