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samualson samualson
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Posts: 2459
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6 years ago
Consider two mutually exclusive projects X and Y with identical initial outlays of $600,000 and useful lives of 5 years. Project X is expected to produce an after-tax cash flow of $180,000 each year. Project Y is expected to generate a single after-tax net cash flow of $1,015,000 in year 5. The discount rate is 14 percent.
a.Calculate the net present value for each project.
b.Calculate the IRR for each project.
c.What decision should you make regarding these projects?
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#1
6 years ago
 
a. NPV of A = $17,955NPV of B = $23,242
b. IRR of A = 15.24%IRR of B = 14.87%
c. B should be accepted because it is the mutually exclusive project with the highest positive NPV.
 
samualson Author
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#2
6 years ago
Such an awesome helper!
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