i Net Present Value NPV of the Projects

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i Net Present Value NPV of the Projects
screenshot_20180103_083300.png
i Net Present Value NPV of the Projects
screenshot_20180103_083308.png

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School: Cornell University

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Requirement: a
(i) Net Present Value (NPV) of the Projects
The net present value (NPV) is the difference of present value of cash flows and present value of
cash outflows of a project. The decision rule with NPV methodology is that for mutually projects
a project with higher NPV should be accepted. The NPV of Project A and Project B are $4,132.23
and $2,479.34 respectively (Appendix).
(ii) Internal Rate of Return (IRR) of the Projects
The internal rate of return (IRR) is the discount rate at which the present value of cash flows and
present value of cash outflows of a project are equal. The decision rule with IRR methodology is
that for mutually projects a project with higher IRR should be accepted. The IRR of Project A and
Project B are 15.76% and 16.93% respectively (Appendix).
(iii) Payback Period (PBP) of the Projects
The payback period is the time period required to recover the initial cash outlay of a project. The
decision rule with payback period methodology is that for mutually projects a project with lower
payback period should be accepted. The payback period of Project A and Project B are 2.25 years
and 2.29 years respectively (Appendix).
(iv) Project Acceptance Decision
The NPV of Project A is higher than that of Project B. Based on the NPV methodology, Project A
is preferable. Project A is also preferable over Project B as the payback period of Project A is
lower than that of Project B. But the IRR of Project B is higher than that of Project A. Based on
the IRR methodology, Project B is acceptable. Here, NPV decision rule and IRR decision rule are
providing conflicting result. In such case, t...

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Anonymous
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