Net Present value
Question # 00005702
Posted By:
Updated on: 12/23/2013 01:09 AM Due on: 12/31/2014
It's time to decide how to use the money your firm is expected to make this year. Two investment opportunities are available, with net cash flows as follows:
Year Project X Project Y
0 (Now) ($30,000) ($30,000)
1 11,000 4,000
2 10,000 8,000
3 9,000 12,000
4 8,000 16,000
a. Calculate each project's Net Present Value (NPV), assuming your firm's weighted average cost of capital (WACC) is 6%
b. Calculate each project’s Internal rate of Return (IRR).
c. Plot NPV profiles for both projects on a graph).
d. Assuming that your firm's WACC is 6%:
(1) If the projects are independent which one(s) should be accepted?
(2) If the projects are mutually exclusive which one(s) should be accepted?
Year Project X Project Y
0 (Now) ($30,000) ($30,000)
1 11,000 4,000
2 10,000 8,000
3 9,000 12,000
4 8,000 16,000
a. Calculate each project's Net Present Value (NPV), assuming your firm's weighted average cost of capital (WACC) is 6%
b. Calculate each project’s Internal rate of Return (IRR).
c. Plot NPV profiles for both projects on a graph).
d. Assuming that your firm's WACC is 6%:
(1) If the projects are independent which one(s) should be accepted?
(2) If the projects are mutually exclusive which one(s) should be accepted?

Rating:
5/
Solution: Net Present value