Unformatted text preview: Problem 22 A NPV IRR Inc. IRR PI B Implications $34,682.23 $93,604.18 Project B has a greater net present value, thus it should be preferred over projec 31.28% 29.54% For both projects IRR is greater than the discount rate, thus both of them are acc We shouldn't make a decision based on which IRR is greater. 28.60% Since the Incremental IRR is greater than the discount rate of 15% $0.35 $0.47 we should choose project B The profitability index in this case leads to the right choice, that of choosing proje although it is not always the case Calculations $100,000.00 $200,000.02 0.02 Problem 23 Payback IRR Inc. IRR PI NPV Calculations 0 0 0.02 0 C  B 10% 1945.15 A 2 yrs B 1 yr C 1 yr Implications Either B or C can be chosen if we set the payback period to one y 0% 39.72% 61.80% Project A should be discarded since its IRR is lower than the disco According to the results project C should be chosen since it has hi 10% The incremental IRR is lower than the discount rate of 12% Nevertheless, the NPV of incremental cash flows is approximately $(0.15) $0.22 $0.53 The profitability index suggests C is the right choice $(21,900.83) $43,750.00 $52,777.78 Since project C has higher NPV, it is the one to be chosen Project A has to be discarded since it has negative NPV it should be preferred over project A nt rate, thus both of them are acceptable IRR is greater. iscount rate of 15% ight choice, that of choosing project B, set the payback period to one year ce its IRR is lower than the discount rate. should be chosen since it has higher IRR the discount rate of 12% ntal cash flows is approximately 1,945.15, thus project C should be chosen is the right choice it is the one to be chosen ce it has negative NPV ...
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 Fall '09
 Lomev
 Corporate Finance, Net Present Value, 0%, $0.22, $0.35, $0.53, $0.47

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