Q1) A project has cash flows of –$100, +$55, and +$60.50 in consecutive years starting from right now. What is the IRR of the Project? The table below shows the un-discounted cash flows of 5 projects...

1 answer below »
check the attachment please



Q1) A project has cash flows of –$100, +$55, and +$60.50 in consecutive years starting from right now.  What is the IRR of the Project?  The table below shows the un-discounted cash flows of 5 projects over 4 years. Use this following information to answer questions 2 through 6.  For all questions assume that the yearly discount rate is 9%. Project  Year 0 Year 1 Year 2 Year 3 Year 4 A -$1,000 $300 $500 $500 $600 B -$1,000 $150 $200 $1,000 $1,200 C -$2,000 $1,900 $200 $0 $0 D -$200 $300 $0 $0 $0 E -$200 $300 $0 -$100 $0 Q2) If the projects are mutually exclusive which project do you accept? Q3) Based on your answer from question 2, what is that project's NPV.   Q4) If the projects were not mutually exclusive and you had unlimited money, which projects would you accept?  Q5) Based on your answer from question 4, select the project that has the highest IRR, what is that projects IRR? Q6) If you are interested in selecting the project(s) with the highest Profitability Index which project(s) would you select.  This question may have multiple answer.   Q7) Provide a brief explanation on the issues on the Pros and Cons of using IRR and Profitability Index to make decision on investment opportunities.
Answered 1 days AfterMay 06, 2021

Answer To: Q1) A project has cash flows of –$100, +$55, and +$60.50 in consecutive years starting from right...

Harshit answered on May 08 2021
144 Votes
Question 1
Out Flow = 100
Inflow = 5 in year 1 and 60.50 in year 2
    Year
    0
    1
    2
    CF
    -100
    55
    60.5
    IRR =
    10.00%
     
     
NPV Working
    Proj
ect
    Year 0
    Year 1
    Year 2
    Year 3
    Year 4
    NPV
    A
    -1,000
    300
    500
    500
    600
     
    B
    -1,000
    150
    200
    1,000
    1,200
     
    C
    -2,000
    1,900
    200
    0
    0
     
    D
    -200
    300
    0
    0
    0
     
    E
    -200
    300
    0
    -100
    0
     
     
     
     
     
     
     
     
    PVIF @ 9%
    1
     0.917
     0.842
     0.772
     0.708
     
    PV A
    -1,000.00
    275.23
    420.84
    386.09
    425.06
        507.22
    PV B
    -1,000.00
    137.61
    168.34
    772.18
    850.11
        928.24
    PV C
    -2,000.00
    1,743.12
    168.34
    0.00
    0.00
         (88.54)
    PV D
    -200.00
    275.23
    0.00
    0.00
    0.00
          75.23
    PV E
    -200.00
    275.23
    0.00
    -77.22
    0.00
           (1.99)
Question 2
From the above calculations made, we can see that NPV of project B is highest at 924.24. Therefore if the projects are mutually exclusive, then project B should be selected.
Question 3
NPV of project B = 928.24
Question 4
If the projects were not mutually exclusive and there was unlimited money, projects A, B and D would be accepted as they have positive NPV.
Question 5
Project D has the highest IRR of 37.61%
Question 6
    Project
    Initial Investment (A)
    PV OF Cash flows (B)
    Profitability Index (B/A)
    A
    1,000
    1,507.22
     1.51
    B
    1,000
    1,928.24
     1.93...
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here