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Could you tell me if my calculations and answers are correct

Resolved Question:

Could you tell me if my calculations and answers are correct for the following probelm?

FIN/370 – Chapter 22 - Problem 4
The chief financial officer has asked you to calculate the net present values and internal rates of return of two \$50,000 mutually exclusive investments with the following cash flows:

Project A – Cash Flow Project B – Cash Flow
Year 1 \$10,000 \$0
Year 2 \$25,000 \$22,000
Year 3 \$30,000 \$48000

If the firm’s cost of capital is 9%, which investment(s) would you recommend?

Project A
NPV = \$3,381.82
IRR = 12.210%

Project B
NPV = \$5,581.77
IRR = 13.320%

Answer: I would recommend Project B because the NPV is higher than Project A.

Would your answer be different if the cost of capital were 14%?

Project A
NPV = - \$1,742.23
IRR = 12.210%

Project B
NPV = - \$673.07
IRR = 13.420%

Answer: Yes. I would not recommend either Project A or B at this rate because the NPV’s are both negative.
Submitted: 5 years ago.
Category: Homework
Expert:  Linda_us replied 5 years ago.