A project's internal rate of retyin (TRR) is the that forces the PV of iss inflows to equal its cost. The IPG is an estimate of the project's rate of retum, and it is comparable to the on a bond. The equabion for calculating the 1RR is: NPV=CF0+(1+IGR)CF1+(1+ERR)2CF1++(1+DEt)2CFx=00=i=1N(1+IRR)8OFii CF, is the expected cach fow in Period t and cash outfows are treated as negative cash flows, There must be a change in cash flow signs to calculate the IRR. The IRR equation is simply the NPV equation solved for the particular discount rate that causes NPV to equal The IRR calculation assumes that cash flows are reinvessed at the If the IRR is than the project's riskadjusted cest of captal, then the project stould be accepted; however, If the tria is less than the project's risk-adjusted cost of capital, then the project should be Because of the IPR reinvestment rate assumption, ahen projects are evalusted the IRR approach can lead to cooflicting result from the NPV method. Two basic conditions can lead to conficts between NPV and IRR: differences (earlier cash flows in one project vs. later cash fiows in the other project) and project size (the cost of one project is larger than the other), When mutually exclusive projects are considered, then the method should be used to evaluate projects. Quantitative Problemt Belinger Industries is considering two projects for inclusion in its capital budget, and you hure been asked to do the analyss. Both projects' afteritax cash fows are shown on the time line below. Depreciation, salvage values, net operating workeng copital requirements, and tax effects are all incioded in these cash fows. Iloth projects have 4-year tives, and they here risk characteristics simitar to the firm's average project. Befinger's wacc is git. What is Project A's Ina? De not round intermediate calculotions: Round your answer to two eccamal places: What is Project B's tRe? Do not round intermediste calculations. Round your answer to two decimul pleces. If the projects were independent, which project(s) would be accepted accorsing to the tris method? A project's internal rate of retyin (TRR) is the that forces the PV of iss inflows to equal its cost. The IPG is an estimate of the project's rate of retum, and it is comparable to the on a bond. The equabion for calculating the 1RR is: NPV=CF0+(1+IGR)CF1+(1+ERR)2CF1++(1+DEt)2CFx=00=i=1N(1+IRR)8OFii CF, is the expected cach fow in Period t and cash outfows are treated as negative cash flows, There must be a change in cash flow signs to calculate the IRR. The IRR equation is simply the NPV equation solved for the particular discount rate that causes NPV to equal The IRR calculation assumes that cash flows are reinvessed at the If the IRR is than the project's riskadjusted cest of captal, then the project stould be accepted; however, If the tria is less than the project's risk-adjusted cost of capital, then the project should be Because of the IPR reinvestment rate assumption, ahen projects are evalusted the IRR approach can lead to cooflicting result from the NPV method. Two basic conditions can lead to conficts between NPV and IRR: differences (earlier cash flows in one project vs. later cash fiows in the other project) and project size (the cost of one project is larger than the other), When mutually exclusive projects are considered, then the method should be used to evaluate projects. Quantitative Problemt Belinger Industries is considering two projects for inclusion in its capital budget, and you hure been asked to do the analyss. Both projects' afteritax cash fows are shown on the time line below. Depreciation, salvage values, net operating workeng copital requirements, and tax effects are all incioded in these cash fows. Iloth projects have 4-year tives, and they here risk characteristics simitar to the firm's average project. Befinger's wacc is git. What is Project A's Ina? De not round intermediate calculotions: Round your answer to two eccamal places: What is Project B's tRe? Do not round intermediste calculations. Round your answer to two decimul pleces. If the projects were independent, which project(s) would be accepted accorsing to the tris method? What is Praject A's 12R? Do not round intermediste calculations. Pound your answer to two decimal places. What is Project B's trazilpo not round intermediate calculations. Round your answer to two decimal places. If the projects were independent, which project(s) would be accepted according to the tra method? If the projects were mutually exdudve, which project(s) would be accepted according to the tan method? Could there be a confict with project acceptance between the NFV and inR approsches when projects are mutually exdusiver. The resson is crescet: Reinvestment at the decision. is the superior assumption, so when mutwally exclusive projects are evaluated the
