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7 Mar 2018

Initial Outlay: $4,000,000

Cash Flow In Period
1 - $1,546,170
2 - $1,546,170
3 - $1,546,170
4 - $1,546,170

The Internal Rate of Return (to the nearest whole percent) is:
A) 10%
B) 18%
C) 20%
D) 24%

Please explain your solution for future reference. Thank you in advance!

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Reid Wolff
Reid WolffLv2
7 Mar 2018

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You have a choice between two mutually exclusive investments. Project A requires initial cash outlay of $150,000 and has projected cash flows of $100,000 for year one, $55,000 for year two, and $30,000 for year three. Meanwhile, Project B requires initial cash outlay of $100,000 and has projected cash flows of $40,000 per year for the next three years. The required rate of return is 10%.

(a)(3 points) Calculate the ordinary payback period for both projects and determine which should be accepted. Assume the target payback period is 2 years. Explain why.

(b) (4 points) Calculate the discounted payback period for both projects and determine which should be accepted. Assume the target payback period is 2 years Explain why.

(c) (3 points) Calculate the profitability index (PI) for both projects and determine which should be accepted. Explain why.

(d) (4 points) Assuming the projected cash flow is a future net income, calculate the average accounting return (AAR) for both projects and determine which should be accepted if the target average accounting return is 30%. Explain why.

Find the internal rate of return (IRR) for the following series of future cash flows. The initial outlay is $651,200.

Year 1: 124,100

Year 2: 184,200

Year 3: 122,900

Year 4: 146,200

Year 5: 145,000

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

You should use Excel or financial calculator.

(Discounted payback period) Assuming an appropriate discount rate of 11 percent, what is the discounted payback period on a project with an initital outlay of $100,000 and the following cash flows?

year 1 = $30,000

year 2 = $35,000

year 3 = $25,000

year 4 = $25,000

year 5 = $30,000

year 6 = $20,000

Please help by showing work so I can better understand how to set up the equation for future questions. Thank you

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