Company is evaluating two projects, Project A and Project B. The initial investment on both the projects are $25,000. Both have equal lives. The Project A will generate cash flows of $20,000 and $35,000 in year 2 and year 3. The Project B will generate $15,000 in yea- 1, $22,000 year-2, and $25,000 in year-3. Compute the incremental (B-A) IRR. a. -21.38% b. 56.80% с. d. 21.38% -24.75%

Company is evaluating two projects, Project A and Project B. The initial investment on both the projects are $25,000. Both have equal lives. The Project A will generate cash flows of $20,000 and $35,000 in year 2 and year 3. The Project B will generate $15,000 in yea- 1, $22,000 year-2, and $25,000 in year-3. Compute the incremental (B-A) IRR. a. -21.38% b. 56.80% с. d. 21.38% -24.75%

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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IronZee Industries is adding a new product line that will require an investment of $1,268,000. It is estimated this investment will have a 10-year life and will generate net cash inflows of $296,000 the first year, $266,000 during the second year, and $235,000 each year thereafter for 8 years. The project will have $0.00 residual value. Compute the ARR for the investment. (Round your answers to two decimal places when needed and use rounded answers for all future calculations). IronZee Industries Total net cash inflows during operation life of expansion Less: Total depreciation during operating life of expansion Total operating income during operating life Divide by: expansions operating life in years Average annual operating income from expansion (Amount Invested + Residual Value) / 2 / 2 = = / Average amount Invested Average annual operating income / Average amount invested = = ARR (%)
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Bluefield Inc. is considering a project that will require an initial investment of $20,000 and is expected to generate future cash flows of $5,000 for years 1 through 3 and $2,500 for years 4 through 6. The project’s payback period is: A. 6 years B. 5 years C. 4 years D. 67 years

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