Whitley Company is considering two capital investments. Both investments have an initial cost of $$6,000,000$ and total net cash inflows of $$14,000,000$ over $10$ years. Whitley requires a $20\%$ rate of return on this type of investment. Expected net cash inflows are as follovis:

$($Click the icon to view the expected net cash inflows.$)$

The NPV $($net present value$)$ of Plan Alpha is

The NPV $($net present value$)$ of Plan Beta is

The IRR $($internal rate of return$)$ of Plan Alpha is

The IRR $($internal rate of return$)$ of Plan Beta is

Which plan, if any, should the company pursue?

Based on the results above, the company should pursue

because the NPV is

and the IRR is

the company's required rate of return.

Requirement $2.$ Explain the relationship between NPV and IRR. Based on this relationship and the company's required rate of return, are your answers as expected in Requirement $1?$ Why or vihy not?

The internal rate of return is the interest rate that makes the net present value of an investmer

Thus, if an investment's net present value is positive, the internal rate of return is

$[$

$]$ the required rate of return and if the net present value is negative, the internal rate of return is

$]$ the required rate of return and if the net present value is negative, the internal rate of return is

the required rate of return.

Based on this relationship and the company's required rate of return, are your answers as expected in Requirement $1?$ Why or why not?

Based on the relationship described above, the internal rate of return and net present value calculated in Requirement $1$ for the two plans

as expected. For Plan Alpha, the net present value is

$|$ and the internal rate of return is $|$

is

$]$ the required rate of return. For Plan Beta, the net present value is

and the internal rate of return is

the

the required rate of return.

The NPV $($net present value$)$ of Plan Alpha is $

The NPV $($net present value$)$ of Plan Beta is $

The IRR $($internal rate of return$)$ of Plan Alpha is

The IRR $($internal rate of return$)$ of Plan Beta is

Which plan, if any, should the company pursue?

A$.$ The company should not pursue either plan because the NPV is negative and the IRR is less than the company's required rate of return for both plans.

D$.$ The company should not pursue either plan because the NPV is positive and the IRR is greater than the company's required rate of return for both plans.

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