Problem 12-7 NPV Your division is considering two investment projects, each of w

Question

Problem 12-7 NPV Your division is considering two investment projects, each of which requires an up-front expenditure of $17 million. You estimate that the investments will produce the following net cash flows: Year Project A $ 5,000,000 10,000,000 20,000,000 Project EB $20,000,000 10,000,000 6,000,000 a. what are the two projects' net present values, assuming the cost of capital is 5%? Round your answers to the nearest dollar. Project A$ Project B What are the two projects' net present values, assuming the cost of capital is 10%? Round your answers to the nearest dollar. Project A $ Project B$ What are the two projects' net present values, assuming the cost of capital is 15%? Round your answers to the nearest dollar. Project A$ Project B$ b. What are the two projects' IRRs at these same costs of capital? Round your answers to two decimal places. Project A Project B

Explanation / Answer

Project A:

NPV at 5% = 14,108,951.52

NPV at 10% = 10,836,213.37

NPV at 15% = 8,059,587.41

IRR = 36.12%

Project B

NPV at 5% = 16,300,939.42

NPV at 10% = 13,954,169.80

NPV at 15% = 11,897,838.42

IRR = 65.92%

5.00% Cash flows Year Discounted CF Cumulative cash flow (17,000,000.00) 0 -17000000.00 -17000000        5,000,000.00 1 4761904.76 -12238095.238      10,000,000.00 2 9070294.78                 (3,167,800.45)      20,000,000.00 3 17276751.97                 14,108,951.52

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