# Net Present Value and Project

**Topics:**Net present value, Cash flow, Internal rate of return

**Pages:**4 (921 words)

**Published:**January 10, 2011

RRR = 11%

YearPROJECT APROJECT B11%

0($100,000)($100,000)

132,000

232,0000

332,0000

432,0000

532,000$200,000

NPV $18,269$18,690

Required rate of return on these projects is 11 percent

a.What is each project’s payback period?

YearProject AProject BPresent Value (PV) @ 11%Project AProject B 0-100,000-100,0001-100000-100,000

132,00000.90288280

232,00000.81259710

332,00000.73233980

432,00000.66210790

532,000200,0000.5918990118690

Project a 100000/32,000=3.125 years

Project b 100,000/200,000=0.5 There was no cash flow for the first 4 years 4+0.5=4.5 years Project A’s payback period is 3.125 years whereas Project B is 4.5 years. b.What is each project’s net present value?

The NPV for Project A is $18,269, whereas the NPV for Project B is $18,690 c.What is each projects internal rate of return?

Project A 100,000 +

IRR = 18.03%

Project B – 100,000 + 200,000

IRR = 14.87%

d.What has caused the ranking conflict?

The ranging conflict comes from the timeline of the two projects. Over the course of five years project B will make more money than project A. However, project A will begin seeing payback on the investment much faster than project B. Allowing the organization

to begin seeing a return on their money sooner allows the organization to invest in other

areas and...

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