NPV and IRR analysis of projects Thomas Company is considering two mutually exclusive projects. The firm, which has a cost of capital of 12%, has estimated its cash flows as shown in the following table: a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. a. The NPV of project A is $. (Round to the nearest cent.) According to the NPV method, is project A acceptable? (Select the best answer below.) ○ Yes O No The NPV of project B is $☐ (Round to the nearest cent.) Is project B acceptable on the basis of NPV? (Select the best answer below.) ○ Yes O No b. The IRR of project A is ☐ %. (Round to two decimal places.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment Project A $120,000 Project B $106,000 (CF) Year (t) Cash inflows (CF₂) 1 $15,000 $55,000 2 $20,000 $40,000 3 $45,000 $35,000 4 $50,000 $10,000 5 $65,000 $25,000 Is project A acceptable on the basis of IRR? (Select the best answer below.) ○ Yes O No Print Done The IRR of project B is %. (Round to two decimal places.) Is project B acceptable on the basis of IRR? (Select the best answer below.) O Yes No - X
NPV and IRR analysis of projects Thomas Company is considering two mutually exclusive projects. The firm, which has a cost of capital of 12%, has estimated its cash flows as shown in the following table: a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. a. The NPV of project A is $. (Round to the nearest cent.) According to the NPV method, is project A acceptable? (Select the best answer below.) ○ Yes O No The NPV of project B is $☐ (Round to the nearest cent.) Is project B acceptable on the basis of NPV? (Select the best answer below.) ○ Yes O No b. The IRR of project A is ☐ %. (Round to two decimal places.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment Project A $120,000 Project B $106,000 (CF) Year (t) Cash inflows (CF₂) 1 $15,000 $55,000 2 $20,000 $40,000 3 $45,000 $35,000 4 $50,000 $10,000 5 $65,000 $25,000 Is project A acceptable on the basis of IRR? (Select the best answer below.) ○ Yes O No Print Done The IRR of project B is %. (Round to two decimal places.) Is project B acceptable on the basis of IRR? (Select the best answer below.) O Yes No - X
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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Transcribed Image Text:NPV and IRR analysis of projects Thomas Company is considering two mutually exclusive projects. The firm, which has a cost of capital of 12%, has estimated its cash flows as shown in the following table:
a. Calculate the NPV of each project, and assess its acceptability.
b. Calculate the IRR for each project, and assess its acceptability.
a. The NPV of project A is $. (Round to the nearest cent.)
According to the NPV method, is project A acceptable? (Select the best answer below.)
○ Yes
Ο No
Data table
The NPV of project B is $
(Round to the nearest cent.)
(Click on the icon here in order to copy the contents of the data table below
into a spreadsheet.)
Is project B acceptable on the basis of NPV? (Select the best answer below.)
○ Yes
○ No
b. The IRR of project A is ☐ %. (Round to two decimal places.)
Initial investment
(CF)
Project A
$120,000
Project B
$106,000
Year (t)
Cash inflows (CF₂)
1
$15,000
$55,000
2
$20,000
$40,000
3
$45,000
$35,000
4
$50,000
$10,000
5
$65,000
$25,000
Is project A acceptable on the basis of IRR? (Select the best answer below.)
○ Yes
○ No
Print
Done
The IRR of project B is ☐ %. (Round to two decimal places.)
Is project B acceptable on the basis of IRR? (Select the best answer below.)
○ Yes
○ No
- X
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