Question 1
Humboldt Inc. is considering a project that has the following cash flow and WACC data. What is the project’s NPV?
| WACC: | 10% | | | | | |
| Year: | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash flows: | –$1,000 | $400 | $400 | $400 | $400 | $400 |
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$507.94
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$510.09
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$516.31
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$520.61
Question 2
In general, where there is a conflict between two mutually exclusive projects, the NPV of a project and its internal rate of return, in terms of making a go/no go decision, the conflict is resolved by which of the following rules?
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Where the NPV method chooses one project but the IRR method chooses the other, the conflict should generally be resolved in favour of the project with the higher MIRR.
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Where the NPV method chooses one project but the IRR method chooses the other, the conflict should generally be resolved in favour of the project with the higher IRR.
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Where the NPV method chooses one project but the IRR method chooses the other, the conflict should generally be resolved in favour of the project with the higher NPV.
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Where the NPV method chooses one project but the IRR method chooses the other, the conflict should generally be resolved in favour of the project with the shorter payback period.
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