Claire is choosing between two projects but can only take one. The cash flows for the projects are given in the following table: Project Year 0 Year 1 Year 2 Year 3 Year 4 A −$47.6 million−$47.6 million +$24 million+$24 million +$20 million+$20 million +$21 million+$21 million +$17 million+$17 million B −$105.6 million−$105.6 million +$20 million+$20 million +$39 million+$39 million +$50 million+$50 million +$61 million+$61 million All answers in 2 d.p (a-1) The IRR of project A is (a-2) The IRR of project B is (b) If Claire's discount rate is 4.64.6%, the NPV for project A is $$ If Claire's discount rate is 4.64.6%, the NPV for project B is $$ (c) Why do IRR and NPV rank the two projects differently? (Select from the drop-down menus.) NPV and IRR rank the two projects differently because they are measuring different things. (1) NPV/IRR is measuring value creation, while (2) NPV/IRR is measuring return on investment. Because returns do not scale with different levels of investment, the two measures may give different rankings when the initial investments are different.
Claire is choosing between two projects but can only take one. The cash flows for the projects are given in the following table: Project Year 0 Year 1 Year 2 Year 3 Year 4 A −$47.6 million−$47.6 million +$24 million+$24 million +$20 million+$20 million +$21 million+$21 million +$17 million+$17 million B −$105.6 million−$105.6 million +$20 million+$20 million +$39 million+$39 million +$50 million+$50 million +$61 million+$61 million All answers in 2 d.p (a-1) The IRR of project A is (a-2) The IRR of project B is (b) If Claire's discount rate is 4.64.6%, the NPV for project A is $$ If Claire's discount rate is 4.64.6%, the NPV for project B is $$ (c) Why do IRR and NPV rank the two projects differently? (Select from the drop-down menus.) NPV and IRR rank the two projects differently because they are measuring different things. (1) NPV/IRR is measuring value creation, while (2) NPV/IRR is measuring return on investment. Because returns do not scale with different levels of investment, the two measures may give different rankings when the initial investments are different.
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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Claire is choosing between two projects but can only take one.
The cash flows for the projects are given in the following table:
| Project | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 |
| A | −$47.6 million−$47.6 million | +$24 million+$24 million | +$20 million+$20 million | +$21 million+$21 million | +$17 million+$17 million |
| B | −$105.6 million−$105.6 million | +$20 million+$20 million | +$39 million+$39 million | +$50 million+$50 million | +$61 million+$61 million |
All answers in 2 d.p
(a-1) The
(a-2) The IRR of project B is
(b) If Claire's discount rate is 4.64.6%, the
If Claire's discount rate is 4.64.6%, the NPV for project B is $$
(c) Why do IRR and NPV rank the two projects differently?
(Select from the drop-down menus.)
NPV and IRR rank the two projects differently because they are measuring different things. (1) NPV/IRR is measuring value creation, while (2) NPV/IRR is measuring
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