Reference no: EM132985722

Advanced Portfolio Company Limited has identified the following two mutually exclusive projects.

Year            Cash flow of project X($M)                Cash flow of project Y($M)

0                           -300                                          -300

1                             50                                           150

2                            90                                               120

3                              120                                           90

4                                 200                                       50

Required:

Problem (a) Calculate the NPVs for Project X and Project Y under different discount rates of 5%, 10% and 15%, correct to 1 decimal point of million dollars.

Problem (b) What are the IRRs of Project X and Y by means of trial and error, correct to 1 decimal point of percentage? Using the IRR decision rule, which project should the company accept? (Hint: IRR of X is between 15% and 16%, and that of Y is between 16% and 17%)

Problem (c) If the required return is 12%, what is the NPV for each of these projects, correct to 1 decimal point of million dollars? Which project will the company choose if it applies the NPV decision rule?