1) A company is considering two projects. The projects have the following expected cash flows: 1 2 3 4 5 100,000 100,000 200,000 50,000 30,000 10,000 20,000 30,000 30,000 30,000 40,000 t 0 Project X cash flow -350,000 Project Y cash flow -120,000 10,000 (a) Which project should they prefer if the cost of capital is í = 2%? (b) Which project should they prefer if the cost of capital is i = 12%? (c) Which of the following set of options represents the internal rates of return of the two projects? Project Y IRR Project X IRR 7.5% 8.9% 12.5% 13.9% Option A 028 C D 13.9% 12.5 8.9% 7.5%
1) A company is considering two projects. The projects have the following expected cash flows: 1 2 3 4 5 100,000 100,000 200,000 50,000 30,000 10,000 20,000 30,000 30,000 30,000 40,000 t 0 Project X cash flow -350,000 Project Y cash flow -120,000 10,000 (a) Which project should they prefer if the cost of capital is í = 2%? (b) Which project should they prefer if the cost of capital is i = 12%? (c) Which of the following set of options represents the internal rates of return of the two projects? Project Y IRR Project X IRR 7.5% 8.9% 12.5% 13.9% Option A 028 C D 13.9% 12.5 8.9% 7.5%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:1) A company is considering two projects. The projects have the following expected cash flows:
t
0
1
2
3
Project X cash flow
Project Y cash flow.
-350,000 100,000 100,000 200,000
-120,000 10,000 20,000 30,000
(a) Which project should they prefer if the cost of capital is í = 2%?
(b) Which project should they prefer if the cost of capital is i = 12%?
4
50,000
30,000
Option
A
B
(c) Which of the following set of options represents the internal rates of return of the two projects?
Project X IRR
Project Y IRR
7.5%
13.9%
8.9%
12.5
12.5%
8.9%
13.9%
7.5%
C
D
5
6
30,000
10,000
30,000 40,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 6 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education