a firm with an 18 cost of capital is considering the following projects on january 1 629765

Aug 30, 2021 | Uncategorized

Items 1 and 2 are based on the following information:

A firm, with an 18% cost of capital, is considering the following projects (on January 1, 2006):

Jan. 1, 2006, Cash outflow (000’s omitted)

Dec. 31, 2010, Cash inflow (000’s omitted)

Project internal rate of return

Project A

$3,500

$7,400

15%

Project B

4,000

9,950

?

Present Value of $1 Due at End of “N” Periods

N

12%

14%

15%

16%

18%

20%

22%

4

.6355

.5921

.5718

.5523

.5158

.4823

.4230

5

.5674

.5194

.4972

.4761

.4371

.4019

.3411

6

.5066

.4556

.4323

.4104

.3704

.3349

.2751

Using the net present value method, Project A’s net present value is

  1. $ 316,920
  2. $0
  3. $(265,460)
  4. $(316,920)

Project B’s internal rate of return is closest to

  1. 15%
  2. 18%
  3. 20%
  4. 22%