FIN 486 Expect Success/uophelp.com FIN 486 Expect Success/uophelp.com | Page 22

cash flows associated with each are shown in the following table. The
firm’s cost of capital is 15%.
·
a. Calculate the net present value (NPV) of each press.
·
b. Using NPV, evaluate the acceptability of each press.
·
c. Rank the presses from best to worst using NPV.
·
d. Calculate the profitability index (PI) for each press.
·
e. Rank the presses from best to worst using PI.
P10–14 Internal rate of return For each of the projects shown in the
following table, calculate the internal rate of return (IRR). Then
indicate, for each project, the maximum cost of capital that the firm
could have and still find the IRR acceptable.
Project A
D

Project B

Project C

Project

Initial investment (CF0)
$90,000
$20,000
$240,000
Year (t)
Cash inflows (CFt)

$490,000

1

$20,000

$150,000

$7,500

25,000

150,000

7,500

30,000

150,000

7,500

35,000

150,000

7,500

40,000

—

7,500

$120,000
2
100,000
3
80,000
4
60,000
5
—