E5 - You can choose between two mutually exclusive projects, Project A and Project B. The...
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E5 - You can choose between two mutually exclusive projects, Project A and Project B. The initial investment (today) is 90 MSEK for project A and 150 MSEK for project B. Thereafter the projects generate the following cash flows in the end of each year during a 5-year period: Project A year 1 2 3 4 5 cash flow (MSEK) 8 8 8 8 140 Project B year 1 2 3 4 5 cash flow (MSEK) 18 18 18 18 180 Discuss and show in a graph with the projects NPV profile why a correct investment decision cannot be based on simply choosing the project with the highest internal rate of return (IRR). (5 p) E5 - You can choose between two mutually exclusive projects, Project A and Project B. The initial investment (today) is 90 MSEK for project A and 150 MSEK for project B. Thereafter the projects generate the following cash flows in the end of each year during a 5-year period: Project A year 1 2 3 4 5 cash flow (MSEK) 8 8 8 8 140 Project B year 1 2 3 4 5 cash flow (MSEK) 18 18 18 18 180 Discuss and show in a graph with the projects NPV profile why a correct investment decision cannot be based on simply choosing the project with the highest internal rate of return (IRR). (5 p)
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Hance solved it Answer NPV IRR is the rate at which NPV 0 Discount rates 6 ... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
Posted Date:
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