# i Net Present Value NPV of the Projects

*label*Business Finance

*timer*Asked: Jan 3rd, 2018

*account_balance_wallet*$15

**Question description**

no words limits. Answer must be accurate.

Please refer to the attachement for the questions.

## Tutor Answer

Here is the answer. Thank you

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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