Question: Project Evaluation (LO4). Consider the cash flows for the two projects below: Project A Project B Initial cash outlay $10,000 $50,000 Net cash inflowsyear 1

Project Evaluation (LO4). Consider the cash flows for the two projects below:

Project A Project B

Initial cash outlay $10,000 $50,000

Net cash inflowsyear 1 $5,000 $22,000

Net cash inflowsyear 2 $5,000 $22,000

Net cash inflowsyear 3 $5,000 $22,000

The company uses a discount rate of 10% for evaluating projects.

Required:

a.Using the tables, calculate the net present value for the two projects. Which project yields the greater NPV?

b. Using the tables, calculate the internal rate of return (IRR) for the two projects. Which project has the higher rate of return?

c.Why does the ranking per NPV favor project B over project A even though project A is more profitable per the IRR criterion?

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:

Project evaluation {L04}. Consider the cash flows for the two projects below: Project A Project B Initial cash outlay $16,666 $56,666 Net cash inows year' 1 $5,666 22,666 Net cash inflows year 2...

Q:

Consider the cash flows for the two projects below: Initial cash outlay Net cash inflowsyear 1 Net cash inflowsyear 2 Net cash inflowsyear 3 Project A $10,000 $5,000 $5,000 $5,000 Project B $50,000...

Q:

Consider the cash flows for the two projects below: .................................................Project A............... Project B Initial cash outlay................................

Q:

Joleen Company is considering two alternative Investment opportunities, each requiring an initial cash outlay of $10,000. The company requires a 12% return from its Investments. PV of $1 or PV of 5)...

Q:

Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use...

Q:

Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use...

Q:

Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use...

Q:

Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use...

Q:

Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use present values are (1) Net present value method (NPV) and (2)...

Q:

Question Content Area Mastery Problem: Net Present Value and Internal Rate of Return Question Content Area Part One Companies use capital investment analysis to evaluate long-term investments....

Q:

Consider a network layer that senses collisions and retransmits immediately on detection of a collision. What problems could arise with this strategy? How could they be rectified?

Q:

In a two-tailed hypothesis test of a claim about a proportion, the P-value is the area to the right of the standard score, z.

Q:

1 8 8 6 9 % The starting point in preparing a master budget is the preparation of the a . production budget. b . sales budget. c . purchasing bodget. d . personnel budget.

Q:

Does anyone know how to solve it correctly? I posted it once and the answer was incorrect. It's CHE 301 class. I will rate your answer. Thank you. Problem 2: Regenerative Rankine Cycle with Closed...

Q:

=+ f. Do you think that this analysis provides a good way of thinking about a minimumwage law? Why or why not?

Q:

=+ c. How would this change in productivity affect the labor market if unions prevent real wages from falling?

Q:

=+ 7. When workers wages rise, their decision about how much time to spend working is affected in two confl icting waysas you may have learned in courses in microeconomics. The income effect