Question 1) The X Corp has identified the following two mutually exclusive projects. X Corp has a cost of capital of 10%. What is the NPV, IRR and PI of each project and which project should they accept and why?
|
TIME
|
PROJECT A
|
PROJECT B
|
|
0
|
-10,000
|
-10,000
|
|
1
|
12,000
|
100
|
|
2
|
100
|
100
|
|
3
|
100
|
100
|
|
4
|
100
|
16,000
|
Question 2. RCT is evaluating a project in Columbia. The project will create the following cash flows:
Year Cash Flow
0 -$750,000
1 205,000
2 265,000
3 346,000
4 220,000
All cash flows will occur in Columbia and are expressed in dollars. In an attempt to improve its economy, the Columbia government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. If RCT uses an 11 percent required return on this project, what are the NPV and IRR of the project? Is the IRR you calculated the MIRR of the project? Why or why not?