FM11 17 - NPV ∆ = $39,162,393 $35,000,000 = $4,162,393...

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b. If the company takes Plan A rather than B, its cash flows will be (in millions of dollars): Cash Flows Cash Flows Project Year from A from B Cash Flows 0 ($50) ($15.0) ($35.0) 1 8 3.4 4.6 2 8 3.4 4.6 . . . . . . . . . . . . 20 8 3.4 4.6 So, Project has a "cost" of $35,000,000 and "inflows" of $4,600,000 per year for 20 years. Inputs 20 10 4600000 0 I PV PMT FV N Output = -39,162,393
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Unformatted text preview: NPV ∆ = $39,162,393 - $35,000,000 = $4,162,393. Inputs 2 -35000000 4600000 0 I PV PMT FV N Output = 11.71 IRR ∆ = 11.71%. Since IRR ∆ > r, and since we should accept ∆ . This means accept the larger project (Project A). In addition, when dealing with mutually exclusive projects, we use the NPV method for choosing the best project. Answers and Solutions: 11 - 17...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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