You are evaluating the following two mutually exclusive projects: Project Year 0 Year 1 Year 2 A -$100 $100 $200 B -$50 $60 $125 Both have 15% cost of capital. Using NPV profiles for Projects A and B, determine which project would be chosen under each of IRR rule and NPV rule. (Hint: Draw the NPV profiles.)

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22-07-2022
Business

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You are evaluating the following two mutually exclusive projects: Project Year 0 Year 1 Year 2 A -$100 $100 $200 B -$50 $60 $125 Both have 15% cost of capital. Using NPV profiles for Projects A and B, determine which project would be chosen under each of IRR rule and NPV rule. (Hint: Draw the NPV profiles.)

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Tutorconsortium351 Tutorconsortium351 · Answer 1 · 2022-08-02T08:27:31+02:00

Project Year 0 Year 1 Year 2 A -$100 $100 $200 B -$50 $60 $125 Both have 15% cost of capital. Using NPV profiles for Projects A and B, determine which project would be chosen under each of IRR rule and NPV rule.

Concept of net present value (NPV) ?

The concept of net present value (NPV) is used to calculate the current value of all projected future cash flows, including the initial capital expenditure. To determine which projects are most likely to generate the highest profit, it is frequently used in capital budgeting.

Two mutually exclusive projects: Project Year 0 Year 1 Year 2 A -$100 $100 $200 B -$50 $60 $125 Both have 15% cost of capital. Using NPV profiles for Projects A and B, determine which project would be chosen under each of IRR rule and NPV rule.

The amount of future cash flows and their regularity affect how the NPV calculation is calculated.
To determine the current value of a future stream of payments, one uses net present value (NPV).
When capital planning, NPV is used to analyze whether a current investment will result in future positive cash flow.
The discounted present value of all future cash flows associated with a project or investment will be positive if the project or investment has a positive net present value (NPV).

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