1) "Millie's Ice Cream" Company Limited has two (2) projects under consideration. The cash flows for each project are shown in the following table. The firm will be using a bank loan that has an annual interest of 13% to finance this project. Project A $212,000 Project B $212,000 Cash Inflows (CF.) $90,000 $80,000 Initial Investment (CFo) Year 1 $62,000 $62,000 $62,000 $62,000 $62,000 2 3 $65,000 $55,000 $40,000 a. Calculate each project's net present value (NPV). Which project is preferred according to this method? b. Calculate each project's payback period. Which project is preferred according to this method? c. Given the net present vales (NPVS) calculated in part a, which project will have a greater Internal Rate of Return (IRR)? Please provide a brief explanation for your response.
1) "Millie's Ice Cream" Company Limited has two (2) projects under consideration. The cash flows for each project are shown in the following table. The firm will be using a bank loan that has an annual interest of 13% to finance this project. Project A $212,000 Project B $212,000 Cash Inflows (CF.) $90,000 $80,000 Initial Investment (CFo) Year 1 $62,000 $62,000 $62,000 $62,000 $62,000 2 3 $65,000 $55,000 $40,000 a. Calculate each project's net present value (NPV). Which project is preferred according to this method? b. Calculate each project's payback period. Which project is preferred according to this method? c. Given the net present vales (NPVS) calculated in part a, which project will have a greater Internal Rate of Return (IRR)? Please provide a brief explanation for your response.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Thankyou for answering the first half of the question can you please solve the last reminding subpart which is B) the project payback period for Project B and state which project is preferred according to the method and question C )
Transcribed Image Text:QUESTION 6
1) "Millie's Ice Cream" Company Limited has two (2) projects under consideration. The
cash flows for each project are shown in the following table. The firm will be using a
bank loan that has an annual interest of 13% to finance this project.
Project A
$212,000
Project B
$212,000
Cash Inflows (CF,)
$90,000
$80,000
Initial Investment
(CFo)
Year
1
$62,000
$62,000
$62,000
$62,000
$62,000
3
$65,000
$55,000
$40,000
4
a. Calculate each projecť's net present value (NPV). Which project is preferred
according to this method?
b. Calculate each project's payback period. Which project is preferred according to
this method?
c. Given the net present vales (NPVS) calculated in part a, which project will have a
greater Internal Rate of Return (IRR)? Please provide a brief explanation for your
response.
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