Economics Cash Flow and IRR Problem
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You have a choice between the following two mutually exclusive projects. Assume cash is received at the end of the year.
|
Net Cash Flow |
||
|
Year |
Project ‘A’ |
Project ‘B’ |
|
0 |
$(40,000.00) |
$(40,000.00) |
|
1 |
$ 30,000.00 |
$ – |
|
2 |
$ 20,000.00 |
$ – |
|
3 |
$ 10,000.00 |
$ – |
|
4 |
$ – |
$ 50,000.00 |
|
5 |
$ – |
$ 40,000.00 |
a. (5 points) Plot the present value profile for both projects on the same graph. (Use a range between 0-100%)
b. (5 points) Which project would you recommend if your investment opportunity interest rate is 10%? What is the NPV for each project at this rate?
c. (5 points) Which project would you recommend if your investment opportunity interest rate is 20% what is the NPV for each project at this rate?
d. (5 points) What is the IRR for each project?
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