Whitley Company is considering two capital investments. Both investments have an initial cost of $9,000,000 and total net cash inflows of $17,000,000 over 10 years. Whitley requires a 16% rate of return on this type of investment. Expected net cash inflows are as follows:
Requirement 1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue? (Use parentheses oc a minus sign for a negative NPV. Round the NPV calculasions to the nearest whole dollar and the IRR calculations to two decimal places, %.) The NPV (not present value) of Plan Alpha is The NPV (net present value) of Plan Beta is The IRR (internal rate of retum) of Plan Alpha is \% The IRR (internal rate of retum) of Plan Beta is Which plan, If any, should the company pursue? Based on the results above, the cormpany should pursue because the NPV is and the IRR is the company/s required rate of retum. Requirement 2. Explain the relationship between NPV and IRR Based on this relationahip and the companyo required rate of retum, are your answers as expected in Requirement 17 Why or why not? The intemal rase of return is the interest rate that makes the net present value of an investment. Thus, if an imvestments net present value is postive, the insernal rate of retum is the required rate of return and if the net present value is negative, the internal rate of retum is the recuired rate of retum. Based on this relationship and the company's required rate of retum, are your answers as oxpected in Roquirement 1 ? Why or why non? Based on the folationship described above, the internal rate of return and net prosent value calculated in Requirement 1 for the two plars. as expectod. For Plan Apha, the net present value is and the internal rate of return is the roquirod rate of rotum. For Plan Beta, the net present value is and the internal rate of retum is required rate of retum. Data table Requirements 1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue? 2. Explain the relationship between NPV and IRR. Based on this relationship and the company's required rate of retum, are your answers as expected in Requirement 1 ? Why or why not? 3. After further negotiating, the company can now invest with an initial cost of $7,800,000 for both plans. Recalculate the NPV and IRR. Which plan, if any, should the company pursue? % ) The NPV (not present value) of Plan Alpha is 5 The NPV (net present value) of Plan Berta is $ The IRR (intemal rele of return) of Plan Apha is The IRR (intemal rale of retum) of Plan Beta is Which plan, if any, should the company pursue? A. The company should not pursue either plan because the NPV is positive and she IRR is greater than the companys required tase of retum for both plans. rate of rotum for both plans. If the company must choose only one plan, it should purve Plan Beta because it has the higher NPV and IRR. C. The compary should not pursue ether plan because the NPV is negative and the IRA is lass than the cempany required rate of rebum for both plans rele of relum for both plans. If the company must choose only one plan, it ahould purnue Plan Npha becouse it has the lower NPV and ifer. Requirement 1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue? (Use parentheses oc a minus sign for a negative NPV. Round the NPV calculasions to the nearest whole dollar and the IRR calculations to two decimal places, %.) The NPV (not present value) of Plan Alpha is The NPV (net present value) of Plan Beta is The IRR (internal rate of retum) of Plan Alpha is \% The IRR (internal rate of retum) of Plan Beta is Which plan, If any, should the company pursue? Based on the results above, the cormpany should pursue because the NPV is and the IRR is the company/s required rate of retum. Requirement 2. Explain the relationship between NPV and IRR Based on this relationahip and the companyo required rate of retum, are your answers as expected in Requirement 17 Why or why not? The intemal rase of return is the interest rate that makes the net present value of an investment. Thus, if an imvestments net present value is postive, the insernal rate of retum is the required rate of return and if the net present value is negative, the internal rate of retum is the recuired rate of retum. Based on this relationship and the company's required rate of retum, are your answers as oxpected in Roquirement 1 ? Why or why non? Based on the folationship described above, the internal rate of return and net prosent value calculated in Requirement 1 for the two plars. as expectod. For Plan Apha, the net present value is and the internal rate of return is the roquirod rate of rotum. For Plan Beta, the net present value is and the internal rate of retum is required rate of retum. Data table Requirements 1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue? 2. Explain the relationship between NPV and IRR. Based on this relationship and the company's required rate of retum, are your answers as expected in Requirement 1 ? Why or why not? 3. After further negotiating, the company can now invest with an initial cost of $7,800,000 for both plans. Recalculate the NPV and IRR. Which plan, if any, should the company pursue? % ) The NPV (not present value) of Plan Alpha is 5 The NPV (net present value) of Plan Berta is $ The IRR (intemal rele of return) of Plan Apha is The IRR (intemal rale of retum) of Plan Beta is Which plan, if any, should the company pursue? A. The company should not pursue either plan because the NPV is positive and she IRR is greater than the companys required tase of retum for both plans. rate of rotum for both plans. If the company must choose only one plan, it should purve Plan Beta because it has the higher NPV and IRR. C. The compary should not pursue ether plan because the NPV is negative and the IRA is lass than the cempany required rate of rebum for both plans rele of relum for both plans. If the company must choose only one plan, it ahould purnue Plan Npha becouse it has the lower NPV and ifer
