+ Consider the following three mutually exclusive projects: Year 0 1 2 3 4 5 IRR PV of all positive cash flows - use Excel function NPV NPV Best project using IRR decision rule Best project using NPV decision rule Best project using both decision rules Cash flow - Project A -187 500 25 000 70 000 70 000 70 000 30 000 Cash flow- Project B -45 000 17 000 11 000 17 000 11 000 17 000 Cash flow- Project C -128 000 27 000 37 000 47 000 57 000 31 000 a) Calculate the IRR of each of these projects. Using the IRR decision rule, which project should the company accept? b) If the required rate of return is 13%, calculate the NPV of each of these projects. Which project will the company choose if it applies the NPV decision rule? c) Based on your answers in a) and b) Which project the company will finally choose?

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
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Consider the following three mutually exclusive projects:
Cash flow -
Project A
Year
0
1
2
3
4
5
IRR
PV of all positive cash flows - use Excel
function NPV
NPV
Best project using IRR decision rule
Best project using NPV decision rule
Best project using both decision rules
-187 500
25 000
70 000
70 000
70 000
30 000
Cash flow-
Project B
-45 000
17 000
11 000
17 000
11 000
17 000
Cash flow -
Project C
-128 000
27 000
37 000
47 000
57 000
31 000
a) Calculate the IRR of each of these projects. Using the IRR decision rule, which project
should the company accept?
b) If the required rate of return is 13%, calculate the NPV of each of these projects. Which
project will the company choose if it applies the NPV decision rule?
c) Based on your answers in a) and b) Which project the company will finally choose?
Transcribed Image Text:+ Consider the following three mutually exclusive projects: Cash flow - Project A Year 0 1 2 3 4 5 IRR PV of all positive cash flows - use Excel function NPV NPV Best project using IRR decision rule Best project using NPV decision rule Best project using both decision rules -187 500 25 000 70 000 70 000 70 000 30 000 Cash flow- Project B -45 000 17 000 11 000 17 000 11 000 17 000 Cash flow - Project C -128 000 27 000 37 000 47 000 57 000 31 000 a) Calculate the IRR of each of these projects. Using the IRR decision rule, which project should the company accept? b) If the required rate of return is 13%, calculate the NPV of each of these projects. Which project will the company choose if it applies the NPV decision rule? c) Based on your answers in a) and b) Which project the company will finally choose?
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