Acoounting Capital Budgeting

Your company is thinking about acquiring another corporation. You have two choices the cost of each choice is $250,000. You cannot spend more than that, so acquiring both corporations is not an option. The following are your critical data:

Corporation A

Revenues = $100,000 in year one, increasing by 10% each year

Expenses = $20,000 in year one, increasing by 15% each year

Depreciation expense = $5,000 each year

Tax rate = 25%

Discount rate = 10%

A 5-year projected income statement

A 5-year projected cash flow

Net present value (NPV)

Internal rate of return (IRR)

Based on items (a) through (d), which company would you recommend acquiring?

(e). Also, attempt to describe the relationship between NPV and IRR. (Hint. The key factor is the discount rate used.) Show with Excel if possible.

Do not worry about COmpany B. I just need to see an example from A.