Consider the following two projects: Net Cash Flow Each Period Initial Outlay 1 2 3 4 Project A $4,000,000 $2,003,000 $2,003,000 $2,003,000 $2,003,000 Project B $4,000,000 0 0 0 $11,000,000 Calculate the net present value of each of the above projects, assuming a 14 percent discount rate. What is the internal rate of return for each of the above projects? Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above. If 14 percent is the required rate of return, and these projects are independent, what decision should be made? If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
Consider the following two projects: Net Cash Flow Each Period Initial Outlay 1 2 3 4 Project A $4,000,000 $2,003,000 $2,003,000 $2,003,000 $2,003,000 Project B $4,000,000 0 0 0 $11,000,000 Calculate the net present value of each of the above projects, assuming a 14 percent discount rate. What is the internal rate of return for each of the above projects? Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above. If 14 percent is the required rate of return, and these projects are independent, what decision should be made? If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
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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3) Consider the following two projects:
Net Cash Flow Each Period
|
Initial Outlay |
1 |
2 |
3 |
4 |
|
Project A $4,000,000 |
$2,003,000 |
$2,003,000 |
$2,003,000 |
$2,003,000 |
|
Project B $4,000,000 |
0 |
0 |
0 |
$11,000,000 |
- Calculate the
net present value of each of the above projects, assuming a 14 percent discount rate. - What is the
internal rate of return for each of the above projects? - Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above.
- If 14 percent is the required rate of return, and these projects are independent, what decision should be made?
- If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
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