Question
Your firm is choosing between two 8-year projects but can only take one. The estimated free cash flows for the two projects are: Project A:
Your firm is choosing between two 8-year projects but can only take one. The estimated free cash flows for the two projects are: Project A: $6,000,000 immediate investment (free cash outflow), followed by $1,250,000 free cash inflows each year during years 1-8. Project B: $2,000,000 immediate investment (free cash outflow), followed by $0 (break-even) free cash flows in years 1-2, followed by $800,000 free cash inflows each year during years 3-8. Enter dollar values to nearest $1 and percentages to nearest 0.001%. A) What is the internal rate of return (IRR) of Project A? B) What is the IRR of Project B? C) If Project A has a cost of capital (i.e., required rate of return) of 4.000%, what is the NPV of Project A? D) If Project B has a cost of capital of 4.000%, what is the NPV of Project B? E) If Project A has a cost of capital of 12.000%, what is the NPV of Project A? F) If Project B has a cost of capital of 12.000%, what is the NPV of Project B? G) At what cost of capital do the two projects have the same NPV?
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