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Linda_us
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You work for an outdoor play structure manufacturing company

Resolved Question:

You work for an outdoor play structure manufacturing company and are trying to decide
Between two projects:
Year-End Cash Flows ($ thousands)
Project 0 1 2 IRR
Playhouse 230 15 20 10.4%
Fort 280 39 52 8.6%
You can undertake only one project. If your cost of capital is 8%, use the incremental IRR rule to make the correct decision
Submitted: 7 years ago.
Category: Homework
Expert:  Linda_us replied 7 years ago.
Hi Customer

Can you please check that year end cash flows are at 1 2 & 3 year end and not 0 1 & 2.


Regards

Linda
Customer: replied 7 years ago.
Hey Linda,
No it is 0 1 2, this is how is correctly shows:

Year-End Cash Flows ($ thousands)

Project 0 1 2 IRR

Playhouse 230 15 20 10.4%

Fort 280 39 52 8.6%


Thanks
Expert:  Linda_us replied 7 years ago.
Hi Customer

I was just reviewing your response just one more clarification

Assuming project starts on 1st Jan 2009 should I treat $230 cash flow would come in on 1 jan 2009 or 31 dec 2009.

Regards

Linda
Customer: replied 7 years ago.
I would assume Jan 1st, thank you!
Expert:  Linda_us replied 7 years ago.
Hi Customer

Thanks for clarification. You get your answer within 2 hours time.

Regards

Linda
Expert:  Linda_us replied 7 years ago.

Hi

 

Click here for Solution

 

Note:

There are two sheets in the attached excel sheet. Sheet one shows if cash flow are occurring on 1 Jan and investment is also made on 1st Jan. (As described by you)

 

Sheet two shows cash inflow on 31 Dec and Cash outflow on 1st Jan.

 

 

Regards

 

Linda

Expert:  Linda_us replied 7 years ago.
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