Show All Work Please Question 2: (Capital Budgeting) It\'s time to decide how to
ID: 2628625 • Letter: S
Question
Show All Work Please
Question 2: (Capital Budgeting)
It's time to decide how to use the money your firm is expected to make this year. Two investment opportunities are available, with net cash flows as follows:
Year Project X Project Y
0 (Now) ($30,000) ($30,000)
1 12,000 4,800
2 10,000 7,800
3 8,000 10,800
4 6,000 13,800
a. Calculate each project's Net Present Value (NPV), assuming your firm's weighted average cost of capital (WACC) is 5%
b. Calculate each project
Explanation / Answer
The Internal Rate of Return (IRR) is the discount rate that generates a zero net present value for a series of future cash flows. This essentially means that IRR is the rate of return that makes the sum of present value of future cash flows and the final market value of a project (or an investment) equal its current market value.
Internal Rate of Return provides a simple