Text book Cornett: Select Chapters

Finance: Applications & Theory 3^rd Edition w/Connect Plus

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The ThisStuffIsNotBad Company is trying to decide whether or not to accept the following projects.  Using the internal rate of return method (IRR), decide which ones may add value to the firm.  These are independent projects.  Therefore if they all are acceptable, you accept all of them.  They are not competing projects.  [Note:  You may want to compute the NPV first to help find the IRR if not using a financial calculator.]

 SHOW ALL WORK FOR FULL CREDIT.  REFER TO THE IRR LECTURE (4/14/15) FOR THE METHODS OF SOLVING FOR IRR.

 (8 pts) Project A:   Estimated Cash Flows.  Use 7% cost of capital if calculating NPV first.

Year                Project A        

                           0                   - $150,000    So initial cost is $150,000.        

                           1                   +    65,000      

                           2                   +    55,000      

                           3                   +    68,000      

 Project B:  Initial cost of $175,000, followed by yearly, end-of-year cash flows of $55,000 for four years.  

Project C:  Initial cost of $8,019, followed by yearly, end-of-year cash flows of $3,000 for three years.

Which, if any, projects are acceptable?