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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.