Question
The following table shows the forecast cash flows for two projects: C0C0 C1C1 C2C2 C3C3 C4C4 C5C5 A $1,040 $24 $24 $24 $24 $1,232 B
The following table shows the forecast cash flows for two projects:
| C0C0 | C1C1 | C2C2 | C3C3 | C4C4 | C5C5 | |
|---|---|---|---|---|---|---|
| A | $1,040 | $24 | $24 | $24 | $24 | $1,232 |
| B | 1,040 | 62 | 62 | 1,070 |
Now suppose that the term structure is upward sloping and investors demand a higher return on the more distant flows as in the following table:
| t | |||||
|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | 5 | |
| rtrt | 4.0% | 4.5% | 5.0% | 5.5% | 6.0% |
a-1. Calculate the IRR on the two projects.
a-2. Calculate the NPV on the two projects.
a-3. Do the two measures give the same ranking for the two projects?
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Comparative Public Budgeting
Authors: George M Guess
2nd Edition
1316648109, 978-1316648100
