Question: Project Evaluation A company is considering two projects with the following details: Project A : Initial investment: $15,000 Cash flows: $5,000 per year for 4

Project Evaluation

A company is considering two projects with the following details:

Project A:

  • Initial investment: $15,000
  • Cash flows: $5,000 per year for 4 years

Project B:

  • Initial investment: $15,000
  • Cash flows: $6,000 in year 1, $4,000 in year 2, $4,000 in year 3, $5,000 in year 4

The required rate of return is 8%.

Requirements:

  1. Calculate the NPV of both projects.
  2. Determine the IRR of both projects.
  3. Identify which project is more favorable.
  4. Perform a sensitivity analysis with a required rate of return of 10%.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

Q:

Company ABC is considering two mutually exclusive projects: Project Alpha: Initial investment 15,000 with cash flows of 5,000 per year for 5 years. Project Beta: Initial investment 10,000 with cash...

Q:

Your company is considering an investment with the following expected cash flows: Initial Investment = $407,596 Operating Cash Flows = $72,428 per year Terminal Cash Flow = $11,872. The company's...

Q:

Your company is considering an investment with the following expected cash flows: Initial Investment = $407,596 Operating Cash Flows = $73,428 per year Terminal Cash Flow = $11,872. The company's...

Q:

A company is considering two projects. Project A requires an initial investment of $100,000 and generates cash inflows of $30,000 per year for 4 years. Project B requires an initial investment of...

Q:

can you demonstrate how to solve in excel A company is considering two projects. Project A requires an initial investment of $100,000 and generates cash inflows of $30,000 per year for 4 years....

Q:

4. Toms Auto Service, Inc. is considering two projects. Project A has a cost of $30,000 and will provide cash flows of $8,000 per year for 5 years. Project B has a cost of $28,000 and will provide...

Q:

In calculating the NPV after taking into consideration flotation costs, we must calculate PVA. How was this calculated in this example on the slides? (250,000PVA=$1,040,105) NPV and Flotation Costs...

Q:

Your company is considering a project that will cost $4 million. The project will generate after-tax cash flows of $900,000 per year for 8 years. The firms WACC is 15% and the firms target D/E ratio...

Q:

Your company is considering a project that will cost $4 million. The project will generate after-tax cash flows of $900,000 per year for 8 years. The firms WACC is 15% and the firms target D/E ratio...

Q:

!!!PLEASE POST FORMULA VIEW ALONG WITH ANSWER!!! Cubbies Corporation is a relatively young company that has enjoyed great financial success and a very strong growth pattern. However, Cubbies's...

Q:

Donroy Corporation was authorized to issue unlimited preferred shares, $0.30, no-par value, and unlimited common shares, no-par value. During the first year, the following transactions occurred:...

Q:

Eli Orchid has designed a new pharmaceutical product, Orchid Relief, which uses two new ingredients. Eli Orchid can procure limited amounts of each ingredient for each month, that is, the company has...

Q:

A manufacturer claims that the standard deviation in capacity of a certain type of battery the company produces is 2.5 ampere-hours. An independent consumer protection agency wishes to test the...

Q:

A hula hoop and solid disc of equal radii are rolled, from rest and without slipping, down an incline plane. Which one will reach the bottom of the inclined plane first? Explain.

Q:

(Treasury Stock Transactions and Presentation) Andruw Jones Company had the following stockholders equity as of January 1, 2007. During 2007, the following transactions occurred. Instructions Prepare...

Q:

(Equity Transactions and Statement Preparation) Amado Company has two classes of capital stock outstanding: 8%, $20 par preferred and $5 par common. At December 31, 2007, the following accounts were...

Q:

(Treasury StockCost Method) Before Polska Corporation engages in the treasury stock transactions listed below, its general ledger reflects, among others, the following account balances (par value of...