Fritz Walther,the CEO of Carl Walther Sportwaffen GmbH,is choosing between two mutually exclusive projects: 1) the Walther PBJ; and 2) the Walther PPK.Both projects involve an investment of $100,000.The operating cash flows for each project are shown in the table.The opportunity cost of capital is 10%.The PBJ project has an IRR of 11.65% and the PPK project has an IRR of 12.27%.Which project should Fritz choose (and why) ?

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Quizplus · Accepted Answer

NPV = 11ea7fdb_fbe3_b1ed_a768_b3654a17f28e_TB2902_11 11ea7fdb_fbe3_b1ee_a768_4bcb04384fe4_TB2902_11 - Initial Investment 11ea7fdb_fbe3_b1ef_a768_7fb78fea9072_TB2902_11 = 11ea7fdb_fbe3_d800_a768_2d575f70687b_TB2902_11 + 11ea7fdb_fbe3_d801_a768_6538ac1dc915_TB2902_11 - 100,000 = $2,479.34
Using a financial calculator: CF0 = -100,000, C01 = 40,000, F01 = 1, C02 = 80,000, F02 = 1, NPV I = 10, CPT NPV = $2,479.34 11ea7fdb_fbe3_d802_a768_5b63f057e359_TB2902_11 = 11ea7fdb_fbe3_d803_a768_9d2c92a79171_TB2902_11 + 11ea7fdb_fbe3_d804_a768_2f4aa6dd7e59_TB2902_11 - 100,000 = $2,479.34
Using a financial calculator: CF0 = -100,000, C01 = 90,000, F01 = 1, C02 = 25,000, F02 = 1, NPV I = 10, CPT NPV = $2,479.34

Fritz Walther,the CEO of Carl Walther Sportwaffen GmbH,is Choosing Between