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NPV,_PI,_IRR - (Net present value profitability index and...

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(Net present value, profitability index, and internal rate of return calculations) You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annual free cash flows from each project are as follows: Year Project A Project B 0 -50,000 -70,000 1 12,000 13,000 2 12,000 13,000 3 12,000 13,000 4 12,000 13,000 5 12,000 13,000 6 12,000 13,000 Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted. Year Project A PV @12% Year Project B PV @12% 0 -50,000 $-50,000.00 0 -70,000 $-70,000.00 1 12,000 $10,714.29 1 13,000 $11,607.14 2 12,000 $9,566.33 2 13,000 $10,363.52 3 12,000 $8,541.36 3 13,000 $9,253.14 4 12,000 $7,626.22 4 13,000 $8,261.74 5 12,000 $6,809.12 5 13,000 $7,376.55 6 12,000 $6,079.57 6 13,000 $6,586.20 Total present value = $49,336.89 Total present value = $53,448.30 NPV = $-663.11 NPV = $-16,551.70 IRR = 11.53% IRR = 3.18% PI = 0.99 PI = 0.76 Profitability Index = present value of cash inflows/ cash outlay Both the projects should be rejected as they have negative NPV, IRR is less than the required rate of return and PI is less than 1. 2. (NPV with varying rates of return) Johnson Motors is considering building a new factory to produce aluminum baseball bats. This project would require an
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