Company B is deciding which between the 2 projects should it invest in (supported by the cash flow patterns shown below). The company's cost of capital is approximately 9% but due to the current economic environment, its cost of equity may increase and may be a bit more than the approximated value. Year Project 1 Project 2 0 (initial outlay) -13 million -12 million 1 3 million 8 million 2 3 million 6 million 3 5 million 1 million 4 5 million 1 million 5 5 million 1 million 1. calculate the NPV and IRR of both projects 2. which project should the company invest in? would you choose to follow the npv or irr route? explain your answer
Company B is deciding which between the 2 projects should it invest in (supported by the cash flow patterns shown below). The company's cost of capital is approximately 9% but due to the current economic environment, its cost of equity may increase and may be a bit more than the approximated value. Year Project 1 Project 2 0 (initial outlay) -13 million -12 million 1 3 million 8 million 2 3 million 6 million 3 5 million 1 million 4 5 million 1 million 5 5 million 1 million 1. calculate the NPV and IRR of both projects 2. which project should the company invest in? would you choose to follow the npv or irr route? explain your answer
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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Company B is deciding which between the 2 projects should it invest in (supported by the cash flow patterns shown below). The company's cost of capital is approximately 9% but due to the current economic environment, its
| Year | Project 1 | Project 2 |
| 0 (initial outlay) | -13 million | -12 million |
| 1 | 3 million | 8 million |
| 2 | 3 million | 6 million |
| 3 | 5 million | 1 million |
| 4 | 5 million | 1 million |
| 5 | 5 million | 1 million |
1. calculate the NPV and IRR of both projects
2. which project should the company invest in? would you choose to follow the npv or irr route? explain your answer
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