Log in
Finance
1
answer
0
watching
135
views

Net Present Value Versus Internal Rate of Return

For discount factors use Exhibit 14B-1 and Exhibit 14B-2.

Skiba Company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow:

Year Project I Project II
0 $(100,000) $(100,000)
1 — 63,857
2 134,560 63,857

Skiba's cost of capital is 16%.

Required:

1. Compute the NPV and the IRR for each investment. Round present value calculations and your final NPV answers to the nearest dollar. Round IRR answers to the nearest whole percent.

NPV IRR
Project I $ %
Project II $ %

2. Conceptual Connection: Why the project with the larger NPV is the correct choice for Skiba.

Watch
1
answer
0
watching
135
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Collen Von
Collen VonLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Question:
AST Company is attempting to select among the two mutuallyexclusiveprojects both of
which cost Rs. 100,000. The firm has a cost of capital equal to13%.After-tax cash
inflows associated with each project are shown in thefollowingtable :

Year Project A (Rs.) Project B (Rs.)
1 40,000 45,000
2 25,000 25,000
3 35,000 20,000
4 25,000 20,000
5 20,000 20,000

REQUIRED :
(i) Calculate the Payback Period for each project.
(ii) Calculate the Net Present Value (NPV) of each project.
(iii) Calculate the Internal Rate of Return (IRR) foreachproject.
(IRR must be calculated by using “Trial & Error MethodwithInterpolation
Formula”)

(iv) Summarize and compare the above findings for both projectsandindicate which
project you would recommend and why?
AST Company is attempting to select among the twomutuallyexclusive projects both of
which cost Rs. 100,000. The firm has a cost of capital equalto13%. After-tax cash
inflows associated with each project are shown in thefollowingtable :

Year Project A (Rs.) Project B (Rs.)
1 40,000 45,000
2 25,000 25,000
3 35,000 20,000
4 25,000 20,000
5 20,000 20,000

REQUIRED :
(i) Calculate the Payback Period for each project. (2+3)
(ii) Calculate the Net Present Value (NPV) of eachproject.(5+5)
(iii) Calculate the Internal Rate of Return (IRR) foreachproject. (6+6)
(IRR must be calculated by using “Trial & ErrorMethod withInterpolation
Formula”.
(iv) Summarize and compare the above findings for bothprojectsand indicate which
project you would recommend and why?
Question:
AST Company is attempting to select among the two mutuallyexclusiveprojects both of
which cost Rs. 100,000. The firm has a cost of capital equal to13%.After-tax cash
inflows associated with each project are shown in thefollowingtable :

Year ProjectA(Rs.) ProjectB (Rs.)
1 40,000 45,000
2 25,000 25,000
3 35,000 20,000
4 5,000 20,000
5 20,000 20,000

REQUIRED :
(i) Calculate the Payback Period for each project. (2+3)
(ii) Calculate the Net Present Value (NPV) of eachproject.(5+5)
(iii) Calculate the Internal Rate of Return (IRR) for eachproject.(6+6)
(IRR must be calculated by using “Trial & Error MethodwithInterpolation
Formula”. IRR calculated directly by using Excel orFinancialCalculators, will
not be awarded full marks.)
(iv) Summarize and compare the above findings for both projectsandindicate which
project you would recommend and why? (3)

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in