(Net present value, profitability index, and internal rate of return calculations)
You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annual free cash flows from each project are as follows:
You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annual free cash flows from each project are as follows:
YEAR PROJECT A PROJECT B
0 –$50,000 –$70,000
1 12,000 13,000
2 12,000 13,000
3 12,000 13,000
4 12,000 13,000
5 12,000 13,000
6 12,000 13,000
Calculate the NPV, and IRR for each project and indicate if the project should be accepted.
SOLUTION
SOLUTION
