4. NPV versus IRRBruin, Inc., has identified the following two mutually exclusive projects:Year01234Cash Flow(A)-$ 40,00019,10017,80015,2008,400Cash Flow(B)-$ 40,0006,30014,20017,90030,300a. What is the IRR for each of these projects? (5%) Using the IRR decision rule,which project should the company accept? (5%)b. If the required return is 10 percent, what is the NPV for each of these projects?(5%) Which project will the company choose if it applies the NPV decision rule?(5%)

NPV Calculation and Decision:Given a required return of 10%, we can calculate the NPV for each…

Answered: 4. NPV versus IRR Bruin, Inc., has…

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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Marissa Manufacturing is presented with the following two mutually exclusive projects. The required return for both projects is 18 percent. Year 0 1 2 3 34 4 Project M -$ 137,000 64,800 82,800 73,800 59,800 Project N -$368,000 a. Project M Project N b. Project M Project N c. Accept project 146,000 193,000 131,000 123,000 a. What is the IRR for each project? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. c. Which, if either, of the projects should the company accept? do do % %
Consider two mutually exclusive projects A and B: Cash Flows (dollars) Project Co A -39,500 B -59,500 C₁ 28,600 42,500 C₂ NPV at 11% 28,600 +$ 9,478 42,500 +13,282 a. Calculate IRRS for A and B. Note: Do not round intermediate calculations. Enter your answers as a perc Project A B IRR % % b. Which project does the IRR rule suggest is best? Project A Project B c. Which project is really best? Project A Project B P
Consider the following two mutually exclusive projects: Year Cash Flow Cash Flow (X) (Y) 0 -$20,800 -$20,800 1 9,050 10,500 2 9,500 8,000 3 9,000 8,900 IRR Project X: 15.49% Project Y: 15.69% What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Crossover rate ______%
Comparison of NPV and IRR: The Case of Mutually Exclusive Projects Estimated cashflow data for each of two projects, A and B, and the discount rate, r, to be used for the analysis ofcapital investment projects are given below:[LO 12-9][LO 12-9]Year Project A Project B0 ($10,000) ($10,000)1 $7,000 $2,000 2 $3,000 $3,000 3 $2,000 $4,000 4 $2,000 $6,000 Discount rate, r = 10.0%.Required 1. In a capital budgeting context, explain the difference between independent and mutually exclusiveinvestments. Give an example of each type of investment project. What is the primary implication ofthis distinction for the analysis of capital investment projects?2. Use the built-in functions in Excel to calculate the IRR and the NPV for each investment project. Whichof these projects—if either—should be accepted if they are considered independent projects? RoundIRRs to 2 decimal places and NPVs to the nearest whole dollar. 3. An NPV profile for a project is a plot of the project’s NPV as a function of the…
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y)0-$19.100-$ 19,100 18,625 9,650 2 8,650 7,575 3 8,575 8,475 Calculate the IRR for each project. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) What is the crossover rate for these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) What is the NPV of Projects X and Y at discount rates of 0 percent, 15 percent, and 25 percent?
Consider two investments A and B with the following sequences of cash flows: Net Cash Flow n Project A Project B 0 -$120,000 -$100,000 1 20,000 15,000 2 20,000 15,000 3 120,000 130,000 (a) Compute the IRR for each investment. (b) At MARR = 15%, determine the acceptability of each project. (c) If A and B are mutually exclusive projects, which project would you select, based on the rate of return on incremental investment?
You are evaluating two mutually exclusive projects. Period Project X Project Y 0 - $5,000 - $4,000 1 $ 3,250 $3,250 2 $3,250 $2,000 IRR 19.43 % 22.17% If your firm has a cost of capital of 10%, which project should you select? Group of answer choices Project X Project Y Insufficient information to provide an answer
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 15,456 5,225 8,223 13,013 8,705 0 1 234 -$ 276,363 26,400 51,000 57,000 402,000 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period b. What is the payback period for Project B? Payback period c. What is the discounted payback period for Project A? Discounted payback period
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Consider the cash flows for projects Alpha and Beta as follows: Project Alpha Beta Required: (a) (b) Year 0 cash flow -$250 - $150 Year 1 cash flow 0 Year 2 cash flow 400 200 0 Determine the discount rate that will make the NPV of the two projects equal. (Ignore negative discount rates.) Determine the range of discount rates in which project Alpha is preferred to project Beta.
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Calculate the NPVs of both Project X and Project Y. Show the NPVs for each project. If the Projects are Independent which would you approve? If the Projects are Mutually Exclusive which would you approve?

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