It's false! They have to hear all of them
Answer:
Year Cash Flow (A) Cash Flow (B)
0 -37,500 -37,500
1 17,300 5,700
2 16,200 12,900
3 13,800 16,300
4 7,600 27,500
1) Using an excel spreadsheet and the IRR function:
IRR project A = 20%
IRR project B = 19%
2) Using the IRR decision rule, Bruin should choose project A.
3) In this case, since the length of the projects is only 4 years, then there should be no problem with the IRR decision rule, but for projects with longer time lengths, the discounts rates might vary and the best option is to use the modified internal rate of return (MIRR). But in this case the NPV of project B is higher, then Bruin should probably project B because it has a higher NPV. The NPV is always more important then the IRR.
4) Again using an excel spreadsheet and the NPV function:
NPV project A = $6,331
NPV project B = $8,139
5) first we must subtract cash flows from A by the cash flows from B:
1 $11,600
2 $3,300
3 -$2,500
4 -$19,900
then we calculate the IRR = 16%
Bruin should be indifferent between the two projects at a 16% discount rate. That means that at discount rates above 16%, you should choose project A, but at discount rates below 16%, you should choose project B
Answer:
$-8,609
Explanation:
Calculation for How much would you need to set aside
Year Cashflows PVF 5% Present values
1 -500 *0.952381 =-476.19
2 -650(500+150) *0.907029 =-589.569
3 -800(650+150) *0.863838 =-691.07
4 -950(800+150) *0.822702 =-781.567
5 -1100(950+150) *0.783526 =-861.879
6 -1250(1100+150) *0.746215 =-932.769
7 -1400(1250+150) *0.710681 =-994.954
8 -1550(1400+150) *0.676839 =-1049.1
9 -1700(1550+150) *0.644609 =-1095.84
10 -1850(1700+150) *0.613913 =-1135.74
PV=Present value $-8,609
Therefore the amount you will need to set aside is $-8,609
