Question
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years.
Calculate the two projects' NPVs, assuming a cost of capital of 12%.
Project S: $
Project L: $
Which project would be selected, assuming they are mutually exclusive?
Based on the NPV values, Project S/ Project L would be selected.
Calculate the two projects' IRRs.
Project S:
%
Project L:
%
Which project would be selected, assuming they are mutually exclusive?
Based on the IRR values, Project S/ Project L would be selected.
Calculate the two projects' MIRRs, assuming a cost of capital of 12%.
Project S:
%
Project L:
%
Which project would be selected, assuming they are mutually exclusive?
Based on the MIRR values, Project S/ Project L would be selected.
Calculate the two projects' PIs, assuming a cost of capital of 12%.
Project S:
Project L:
Which project would be selected, assuming they are mutually exclusive?
Based on the PI values, Project S/ Project L would be selected.
Which project should actually be selected?
Project S/ Project Lshould actually be selected.
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Fundamentals of Investment Management
Authors: Geoffrey Hirt, Stanley Block
10th edition
0078034620, 978-0078034626
