Inatech is contemplating two different projects and decides to perform a financial analysis to determine which is more financially lucrative. Project A and B have the cash flows as shown and Inatech uses a required rate of return of 8%
Compute the internal rate of return for both projects to determine which is worth of funding.
Year A B
0 -$500,000 -$400,000
1 $260,000 $200,000
2 $170,000 $100,000
3 $125,000 $100,000
4 $75,000 $50,000
5 $25,000 $25,000
Project A has an IRR of 1.85%. The net present value table based on this percentage is as follows:
Year A Discount NPV
0 -$500,000 1 -$500,000
1 $260,000 0.893 $232,143
2 $170,000 0.797 $135,523
3 $125,000 0.712 $89,973
4 $75,000 0.636 $47,664
5 $25,000 0.567 $14,186
Project B has an IRR of 1.91%. The net present value table based on this percentage is:
Year B Discount NPV
0 -$400,000 1 -$400,000
1 $200,000 0.893 $178,571
2 $100,000 0.797 $119,579
3 $100,000 0.712 $71,178
4 $50,000 0.636 $31,776
5 $25,000 0.567 $14,186
Both projects fall short of the hurdle rate of 8%, so Inatech should avoid both. The NPV for project A is $18,488 and for project B is $15,290.
You might also like to view...
Jason is looking for a method of training his employees that will provide hands-on experience and allow for the instructor to customize the training to each employee’s needs. Jason’s best choice of training method would be ______ training.
A. on-the-job B. classroom C. distance D. simulation
Estimates of a set of _______ such as sales growth rate, operating profit margin, working capital investment and cost of capital, are used to calculate the present value of forecasted cash flows and the residual value of the business after the
forecast period. a. value drivers b. customer value c. marketing value d. shareholder value
Answer the following statements true (T) or false (F)
1. A compromise between the structured and unstructured interview format is the semistructured interview. 2. A primary question introduces a topic in an interview, while a secondary question follows up, probing further into the response to the primary question. 3. Primary questions help gain complete and accurate information, and also establish a positive communication climate in the interview. 4. Directed questions are effective as persuasion tools.
A corporation is required to have at least one class of stock with voting rights
a. True b. False Indicate whether the statement is true or false