Question
REFeasibilty Ltd is an Australian real estate company. The financial manager is currently analysing two projects and evaluating the potential of the investment opportunity. The
REFeasibilty Ltd is an Australian real estate company. The financial manager is currently analysing two projects and evaluating the potential of the investment opportunity. The estimated initial investment outlay and after-tax cash flows (incremental) associated with each project are shown in the following table:
Project A Project B
Initial investment ($40,000,000) ($25,000,000)
Year Cash inflows
1 $2,200,000 $1,687,500
2 $2,288,000 $88,000
3 $2,380,000 $1,860,000
4 $2,475,000 $1,953,000
5 $2,574,000 $2,051,000
6 $2,677,000 $2,154,000
7 $42,832,000 $29,183,000
Assume the required rate of return is 7.00% (discount rate), find:
(a) The net present value for project A then project B. (2 mark)
(b) The internal rate of return (IRR) for project A then project B. (2 mark)
(c) Based on your results for part (a) and (b) which project is preferred and why? (1 mark)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started