89 npv 9110 pi 107 project b year cash flow year 0

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: usive NPV and PI assume cash flows are NPV reinvested at the required rate of return for reinvested the project. the IRR assumes cash flows are reinvested at IRR the IRR. the The NPV or PI decision may not agree with The the IRR. Solution: select the largest NPV. NPV Time Disparity example Time Project A year cash flow year 0 (48,000) 1 1,200 2 2,400 3 39,000 4 42,000 required return = 12% IRR = 18.10% NPV = $9,436 NPV $9,436 PI = 1.20 Time Disparity example Time Project A year cash flow year 0 (48,000) 1 1,200 2 2,400 3 39,000 4 42,000 required return = 12% Project B year cash flow year 0 (46,500) 1 36,500 2 24,000 3 2,400 4 2,400 required return = 12% IRR = 18.10% NPV = $9,436 PI = 1.20 IRR = 25.51% IRR 25.51% NPV = $8,455 PI = 1.18 Time Disparity example Time Project A year cash flow year 0 (48,000) 1 1,200 2 2,400 3 39,000 4 42,000 required return = 12% Project B year cash flow year 0 (46,500) 1 36,500 2 24,000 3 2,400 4 2,400 required return = 12% IRR = 18.10% NPV = $9,436 PI = 1.20 IRR = 25.51% NPV =...
View Full Document

This note was uploaded on 01/17/2014 for the course GEB 3375 taught by Professor Sweo during the Winter '08 term at University of Central Florida.

Ask a homework question - tutors are online