Trusted by Students Everywhere
Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
There are two mutually exclusive projects
There are two mutually exclusive projects. The hurdle rate (discount rate) is 14%. A project A requires $100’000 today and returning $115’000 in one year. A project B requires $1’000’000 today returning $1’150’000 in one year. Project A: IRR = 15% Project B IRR = 15%. How would you decide which project to choose? Prove your answer with the necessary computations.
Expert Solution
| Project A | ||
| Discount rate | 0.14 | |
| Year | 0 | 1 |
| Cash flow stream | -100000 | 115000 |
| Discounting factor | 1 | 1.14 |
| Discounted cash flows project | -100000 | 100877.2 |
| NPV = Sum of discounted cash flows | ||
| NPV Project A = | 877.19 | |
| Where | ||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | |
| Discounted Cashflow= | Cash flow stream/discounting factor | |
| Project B | ||
| Discount rate | 0.14 | |
| Year | 0 | 1 |
| Cash flow stream | -1000000 | 1150000 |
| Discounting factor | 1 | 1.14 |
| Discounted cash flows project | -1000000 | 1008772 |
| NPV = Sum of discounted cash flows | ||
| NPV Project B = | 8771.93 | |
| Where | ||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | |
| Discounted Cashflow= | Cash flow stream/discounting factor | |
Choose project B as it has higher NPV
Archived Solution
Unlocked Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
Already a member? Sign In
Important Note:
This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.
For ready-to-submit work, please order a fresh solution below.
For ready-to-submit work, please order a fresh solution below.
Or get 100% fresh solution
Get Custom Quote
