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ACC 501 Assignment

This document contains calculations to analyze and compare two investment projects, Project A and Project B. It calculates the internal rate of return (IRR) for each project using cash flows over 4 years and different interest rates. Project A has a higher IRR of 30.55% compared to 29.37% for Project B, so Project A is selected. It also calculates net present value (NPV) using a 12% required rate of return, finding Project B to have a higher NPV and is thus selected. The document considers multiple financial metrics to evaluate the two projects.

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198 views

ACC 501 Assignment

This document contains calculations to analyze and compare two investment projects, Project A and Project B. It calculates the internal rate of return (IRR) for each project using cash flows over 4 years and different interest rates. Project A has a higher IRR of 30.55% compared to 29.37% for Project B, so Project A is selected. It also calculates net present value (NPV) using a 12% required rate of return, finding Project B to have a higher NPV and is thus selected. The document considers multiple financial metrics to evaluate the two projects.

Uploaded by

studentcare mtn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Mc190203894

ACC501

Solution 1:
IRR = Interest Rate + (High Value – Required Value / High Value – Low Value)
Project A
We take 30% rate of return.
= 25000 / (1+30%)1 + 21000 / (1+30%)2 + 15000 / (1+30%)3 + 11000 / (1+30%)4 – 42000
= 25000 / (1.30)1 + 21000 / (1.30)2 + 15000 / (1.30)3 + 11000 / (1.30)4 – 42000
= 25000 / 1.30 + 21000 / 1.69 + 15000 / 2.20 + 11000 / 2.86 – 42000
= 19230 + 12426 + 6827 + 3851 – 42000
= 335 High value
we get low value at 31%.
= 25000 / (1+31%)1 + 21000 / (1+31%)2 + 15000 / (1+31%)3 + 11000 / (1+31%)4 – 42000
= 25000 / (1.31)1 + 21000 / (1.31)2 + 15000 / (1.31)3 + 11000 / (1.31)4 – 42000
= 25000 / 1.31 + 21000 / 1.72 + 15000 / 2.25 + 11000 / 2.94 – 42000
= 19083 + 12237 + 6672 + 3735 – 42000
= –271 Low value
Project B
we take 29%
= 15000 / (1+29%)1 + 17000 / (1+29%)2 + 23000 / (1+29%)3 + 27000 / (1+29%)4 – 42000
= 15000 / (1.29)1 + 17000 / (1.29)2 + 23000 / (1.29)3 + 27000 / (1.29)4 – 42000
= 15000 / 1.29 + 17000 / 1.66 + 23000 / 2.15 + 27000 / 2.77 – 42000
= 11627 + 10215 + 10714 + 9750 – 42000
= 307 High value
we take 30%
= 15000 / (1+30%)1 + 17000 / (1+30%)2 + 23000 / (1+30%)3 + 27000 / (1+30%)4 – 42000
= 15000 / (1.30)1 + 17000 / (1.30)2 + 23000 / (1.30)3 + 27000 / (1.30)4 – 42000
= 15000 / 1.30 + 17000 / 1.69 + 23000 / 2.20 + 27000 / 2.86 – 42000
= 11538 + 10059 + 10468 + 9453 – 42000
= –519 low value
IRR for Project A
IRR = Interest Rate + (High Value – Required Value / High Value – Low Value)
= 30 + (335 – 0) / 335 – (–271)
= 30 + (335/606)
= 30 + 0.55
= 30.55 %
IRR for Project B
IRR = Interest Rate + (High Value – Required Value / High Value – Low Value)
= 29 + (307 – 0) / 307 – (–519)
= 29 + (307 / 826)
= 29 + 0.37
= 29.37 %
we have selected Project A because its IRR is greater than project B.

Solution 2:
Initial Investment = 42000
Required Rate = 12%
Number of years = 4 years

Project A

= 25000 / (1+12%)1 + 21000 / (1+12%)2 + 15000 / (1+12%)3 + 11000 / (1+12%)4 – 42000


= 25000 / (1.12)1 + 21000 / (1.12)2 + 15000 / (1.12)3 + 11000 / (1.12)4 – 42000
= 25000 / 1.12 + 21000 / 1.25 + 15000 / 1.40 + 11000 / 1.57 – 42000
= 22321 + 16741 + 10676 + 6990 – 42000
= 14730
Project B
= 15000 / (1+12%)1 + 17000 / (1+12%)2 + 23000 / (1+12%)3 + 27000 / (1+12%)4 – 42000
= 15000 / (1.12)1 + 17000 / (1.12)2 + 23000 / (1.12)3 + 27000 / (1.12)4 – 42000
= 15000 / 1.12 + 17000 / 1.25 + 23000 / 1.40 + 27000 / 1.57 – 42000
= 13393 + 13552 + 16370 + 17158 – 42000
= 188475
NPV of Project B is greater than Project A
we have selected Project B.
Answer 3:
we have to use Pay Back Period.
We have selected that project which has lesser Pay Back Period.

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