INLAC Company, Ltd. is examining two investment projects as a part of its expansion plan for the coming year. These two projects are not mutually exclusive. The cost of Project A is $9,870 while the second project (B) is expected to cost $17,850. INLAC's cost of capital (required rate of return) is 12 %. Expected annual cash flows are projected to be as follows:
$\begin{array}{llr}
\text {Year } & \text {Project A } &\text { Project B }\
1 &\$3,310 &\$6,525\
2 &\$3,310 &\$6,525\
3&\$3,310&\$6,525\
4&\$3,310 &\$6,525\
5 &\$3,310 &\$6,525\
\end{array}$

Each project will last an estimated 5 years with no remaining significant scrap value. Determine the IRR and the NPV for each of these two projects. What should INLAC decide about each proposed project, assuming the above figures are truly accurate?

Question

INLAC Company, Ltd. is examining two investment projects as a part of its expansion plan for the coming year. These two projects are not mutually exclusive. The cost of Project A is $9,870 while the second project (B) is expected to cost $17,850. INLAC's cost of capital (required rate of return) is 12 %. Expected annual cash flows are projected to be as follows:
$\begin{array}{llr}
  \text {Year  } & \text {Project A  } &\text { Project B }\
1 &\$3,310 &\$6,525\
2 &\$3,310 &\$6,525\
3&\$3,310&\$6,525\
4&\$3,310 &\$6,525\
5 &\$3,310 &\$6,525\
\end{array}$

Each project will last an estimated 5 years with no remaining significant scrap value. Determine the IRR and the NPV for each of these two projects. What should INLAC decide about each proposed project, assuming the above figures are truly accurate?

Quizplus · Accepted Answer

The Answer of INLAC Company, Ltd. is examining two investment projects as a part of its expansion plan for the coming year. These two projects are not mutually exclusive. The cost of Project A is $9,870 while the second project (B) is expected to cost $17,850. INLAC's cost of capital (required rate of return) is 12 %. Expected annual cash flows are projected to be as follows:
$\begin{array}{llr}
  \text {Year  } & \text {Project A  } &\text { Project B }\
1 &\$3,310 &\$6,525\
2 &\$3,310 &\$6,525\
3&\$3,310&\$6,525\
4&\$3,310 &\$6,525\
5 &\$3,310 &\$6,525\
\end{array}$

Each project will last an estimated 5 years with no remaining significant scrap value. Determine the IRR and the NPV for each of these two projects. What should INLAC decide about each proposed project, assuming the above figures are truly accurate?

INLAC Company, Ltd Each Project Will Last an Estimated 5 Years with No