Calculate the irr and npv for each project

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Reference no: EM13952399

Table 1. Synthetic Resin Cash Flows

Synthetic Resin

Year

0

1

2

3

4

5

Net Income

 

$150,000

$200,000

$300,000

$450,000

$500,000

Depreciation

 

$200,000

$200,000

$200,000

$200,000

$200,000

Net Cash Flow

$(1,000,000)

$350,000

$400,000

$500,000

$650,000

$700,000

Table 2. Epoxy Resin Cash Flows

Epoxy Resin

Year

0

1

2

3

4

5

Net Income

 

$440,000

$240,000

$140,000

$ 40,000

$ 40,000

Depreciation

 

$160,000

$160,000

$160,000

$160,000

$160,000

Net Cash Flow

$(800,000)

$600,000

$400,000

$300,000

$200,000

 

calculate the IRR and NPV for each project. Tim wants to convince the Board that the IRR measure can be misleading when choosing between mutually exclusive alternatives. Why is the IRR decision rule unreliable inmaking the correct choice between the two projects? Tim's presentationshould inform the board on the different reinvestment assumptions underlying IRR and NPV and how that relates to the reliability of the IRR decision rule. What is the correct reinvestment assumption and why?

Reference no: EM13952399

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