Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $228,000
Question:
Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $228,000 and would yield the following annual net cash flows.
a. The company requires a 12% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted.
b. Using the answer from part a, is the internal rate of return higher or lower than 12% for
(i) Project C1 and
(ii) Project C2?
Net cash flows Project C1 Project C2 Year 1.... Year 2 .... Year 3 ..... $ 12,000 $ 96,000 ..... 108,000 96,000 168,000 96,000 Totals... $288,000 $288,000
Step by Step Answer:
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Internal rate of return is a method of calculating an investment’s rate of return. The term internal refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or financial risk.
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