Question
A firm is evaluating the following projects, each with different initial investments and cash flows: Project Initial Investment ($) Year 1 ($) Year 2 ($)
A firm is evaluating the following projects, each with different initial investments and cash flows:
Project | Initial Investment ($) | Year 1 ($) | Year 2 ($) | Year 3 ($) | Year 4 ($) | IRR (%) |
X | 100,000 | 30,000 | 40,000 | 50,000 | 60,000 | 18% |
Y | 150,000 | 40,000 | 50,000 | 60,000 | 70,000 | 16% |
The discount rate is 12%.
a) Compute the NPV of both projects. b) Determine which project should be accepted. c) Discuss the impact of project lifespan on investment decisions. d) Evaluate the sensitivity of NPV to changes in the discount rate.
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Accounting For Managers Interpreting Accounting Information For Decision Making
Authors: Paul M. Collier, Sandy M. Kizan, Eckhard Schumann
1st Canadian Edition
1118037960, 9781118037966
