Reference no: EM132552512

1. Compute the IRR on the following cash flow streams:

a. An initial investment of $28,962 followed by a single cash flow of $40,390 in year 6. (Round answer to 2 decimal places, e.g. 5.25%.)

b. An initial investment of $988,597 followed by a single cash flow of $1,565,600 in year 4. (Round answer to 2 decimal places, e.g. 5.25%.)

c. An initial investment of $1,645,677 followed by cash flows of $1,317,700 and $1,067,000 in years 2 and 4, respectively. (Round answer to 2 decimal places, e.g. 5.25%.)

d. An initial investment of $1,645,677 followed by cash flows of $1,317,700 and $1,067,000 in years 2 and 4, respectively. (Round answer to 2 decimal places, e.g. 5.25%.)

2. Sandhill Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 18.82 percent for such projects.

Year Product Line Expansion Production Capacity Expansion

0 -$3,177,300 -$6,989,400
1 1,200,200 2,600,200
2 994,400 2,600,200
3 994,400 2,600,200
4 994,400 3,827,200
5 994,400 3,827,200

a. What are the NPVs of the two projects? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)

NPV of product line expansion is $­______

NPV of production capacity expansion is $______

b. Should either; neither or both projects be accepted? Why?