Calculate the NPV and the IRR? Choose the best one?

Data Review View Help Calibri Search SARA ACEH X Cut copy Format Painte - 12 AA ==P 29 Wrap Text - A Merge & Center v BIU Text 28 $ % - Font Insert Delete Format A32 Allgement Conditional Formatas Cell Formatting Table Styles Styles Sort & Find & & Clear fx Number Internal Rate of Return Cells Editing D E F G B $ (1,250,000) $ $ $ (1,250,000) $ 100,000 $ $ 100,000 $ 110,000 $ $ 110,000 $ 120,000 $ $ 120,000 $ 130,000 $ 135,000 $ 1,215,000 130,000 $ 1,350,000 16 Initial Investment 17 Projected Net Cash Flows 18 Residual Value (9x Net Cash Flows) 19 Analysis 20 21 NPV (6% Discount Rate) 22 23 Internal Rate of Return 24 25 Option B 26 Initial Investment 27 Projected Net Cash Flows 28 Residual Value (9x Net Cash Flows) 29 Analysis 30 31 NPV (6% Discount Rate) 32 Internal Rate of Return Year One Year Two Year Three Year Four Year Five Investment $ (750,000) $ $ $ (750,000) $ 95,000 $ $ 95,000 $ 100,000 $ $ 100,000 $ 105,000 $ $ 105,000 $ 110,000 $ 120,000 $ 1,080,000 110,000 $ 1,200,000 Sheet1 O Type here to search O ENG 255 101200 BANGLA Clipboard Formatting Table Styles Font 'Clear & Alignment Number Styles Cells fx Internal Rate of Return $ A B C D 1 Session Nine Tutorial E F. G 2 Example: What is the NPV (assuming a 6% discount rate) and the IRR for the following $750,000 investment? 3 4 Investment Year One Year Two Year Three Year Four Year Five 5 Initial Investment $ (750,000) 6 Projected Net Cash Flows 100,000 $ 110,000 $ 120,000 $ 130,000 $ 135,000 7 Residual Value (9x Net Cash Flows) $ $ $ $ $ 1,215,000 8 Analysis $ (750,000) $ 100,000 $ 110,000 $ 120,000 $ 130,000 $ 1,350,000 9 10 NPV (6% Discount Rate) $ (750,000) $1,404,764 $ 654,764 11 12 Internal Rate of Return 23.2% 13 Follow-Up Activity: Based on NPV and IRR, which investment (Option A or Option B) is more attractive? 14 Year One Investment Year Two Year Three Year Four Year Five 15 Option A 16 Initial Investment $ (1,250,000) $ 100,000 $ 110,000 $ 135,000 120,000 $ 130,000 $ 17 Projected Net Cash Flows 7 710 Onridentinlun 10. Mnt roch Clourd 29 ENE 2.527 Type here to senrch 1 Sheet1 TO/2010 a s O 40 144 16 IT 1- ts S B ? OSC & 0/ O Data Review View Help Calibri Search SARA ACEH X Cut copy Format Painte - 12 AA ==P 29 Wrap Text - A Merge & Center v BIU Text 28 $ % - Font Insert Delete Format A32 Allgement Conditional Formatas Cell Formatting Table Styles Styles Sort & Find & & Clear fx Number Internal Rate of Return Cells Editing D E F G B $ (1,250,000) $ $ $ (1,250,000) $ 100,000 $ $ 100,000 $ 110,000 $ $ 110,000 $ 120,000 $ $ 120,000 $ 130,000 $ 135,000 $ 1,215,000 130,000 $ 1,350,000 16 Initial Investment 17 Projected Net Cash Flows 18 Residual Value (9x Net Cash Flows) 19 Analysis 20 21 NPV (6% Discount Rate) 22 23 Internal Rate of Return 24 25 Option B 26 Initial Investment 27 Projected Net Cash Flows 28 Residual Value (9x Net Cash Flows) 29 Analysis 30 31 NPV (6% Discount Rate) 32 Internal Rate of Return Year One Year Two Year Three Year Four Year Five Investment $ (750,000) $ $ $ (750,000) $ 95,000 $ $ 95,000 $ 100,000 $ $ 100,000 $ 105,000 $ $ 105,000 $ 110,000 $ 120,000 $ 1,080,000 110,000 $ 1,200,000 Sheet1 O Type here to search O ENG 255 101200 BANGLA Clipboard Formatting Table Styles Font 'Clear & Alignment Number Styles Cells fx Internal Rate of Return $ A B C D 1 Session Nine Tutorial E F. G 2 Example: What is the NPV (assuming a 6% discount rate) and the IRR for the following $750,000 investment? 3 4 Investment Year One Year Two Year Three Year Four Year Five 5 Initial Investment $ (750,000) 6 Projected Net Cash Flows 100,000 $ 110,000 $ 120,000 $ 130,000 $ 135,000 7 Residual Value (9x Net Cash Flows) $ $ $ $ $ 1,215,000 8 Analysis $ (750,000) $ 100,000 $ 110,000 $ 120,000 $ 130,000 $ 1,350,000 9 10 NPV (6% Discount Rate) $ (750,000) $1,404,764 $ 654,764 11 12 Internal Rate of Return 23.2% 13 Follow-Up Activity: Based on NPV and IRR, which investment (Option A or Option B) is more attractive? 14 Year One Investment Year Two Year Three Year Four Year Five 15 Option A 16 Initial Investment $ (1,250,000) $ 100,000 $ 110,000 $ 135,000 120,000 $ 130,000 $ 17 Projected Net Cash Flows 7 710 Onridentinlun 10. Mnt roch Clourd 29 ENE 2.527 Type here to senrch 1 Sheet1 TO/2010 a s O 40 144 16 IT 1- ts S B ? OSC & 0/ O