How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Lev Your Own Question
Lev
Lev , Tax Preparer
Category: Finance
Satisfied Customers: 28081
Experience:  Personal Investment, Tax Preparation
870116
Type Your Finance Question Here...
Lev is online now
A new question is answered every 9 seconds

Your company is considering two mutually exclusive projects

Resolved Question:

Your company is considering two mutually exclusive projects Projects S and W whose costs and cash flows are below: Year 0: Project S- (14,000) ; Project W-(22,840)    Year 1: Project S- 8,000;       Project W- 8,000                  Year 2: Project S- 6,000;       Project W- 8,000                  Year 3: Project S- 2,000;       Project W- 8,000        Year 4: Project S- 3,000;               Project W- 8,000   The projects are equally risky and their required return is 12 %. Compute the NPV and IRR of each project. Recommend which project should be accepted.
Submitted: 7 years ago.
Category: Finance
Expert:  Lev replied 7 years ago.

Net Present Value (NPV) is the PV of the stream of future Cash Flow (CF) from a project minus the project’s net investment.

 

NPV = CF0 + CF1*(1+k)^1 + CF2*(1+k)^2 + CF3*(1+k)^3 + CF4*(1+k)^4

 

Internal Rate of Return (IRR) is the discount rate at which NPV is zero.

 

CF0 + CF1*(1+IRR)^1 + CF2*(1+IRR)^2 + CF3*(1+IRR)^3 + CF4*(1+IRR)^4 = 0

 

Please find calculations HERE

 

NPV_S = $10016.81

NPV_W = $19982.78

 

IRR_S = -15%

IRR_W = -13%

 

For Mutually exclusive investments - the project with the largest NPV should be recommended.

 

Lev and other Finance Specialists are ready to help you

Related Finance Questions