Seven years ago, Stan purchased 10 shares of an aggressive growth mutual fund at $90 per share, for a total of $900. Today he so
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Answer:
Explanation:
Cost of Capital 12%
Project X
Year 0 1 2 3 4
Cah flow (10000) 6500 3000 3000 1000
Discount Factor 12% 1 0.8929 0.7972 0.7118 0.6355
Present Value (10000) 5804 2392 2135 636
Net Present Value 2.85 years
Net Present Value 966
Discount Factor 10% 1 0.9091 0.8264 0.7513 0.6830
Present Value (10000) 5909 2479 2254 683
Net Present Value 1325
IRR = Lower rate + ( higher rate - lower rate)
IRR = 0.10 + (0.12-0.10) = 17.38%
Project Y
Year 0 1 2 3 4
Cash flow (10000) 3000 3000 3000 3000
Discount Factor 1 0.8929 0.7972 0.7118 0.6355
Present Value (10000) 2679 2392 2135 1907
Payback Above 4 years
Net Present Value (888)
Discount Factor 10% 1 0.9091 0.8264 0.7513 0.6830
Present Value (10000) 2727 2479 2254 2049
Net Present Value (490)
IRR = Lower rate + ( higher rate - lower rate)
IRR = 0.10 + (0.12-0.10) = 7.54%