1) Consider projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV at 10% A 34,500 24,600 24,600 + $8,194 B 54,500 37,500 37,500 + 10,583 a. Calculate IRRs for A and B. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Project IRR A % B % b. Which project does the IRR rule suggest is best? Project A Project B c. Which project is really best? Project A Project B

2)

Consider projects A and B with the following cash flows:

		C0				C1				C2				C3
A			$	33		+	$	17		+	$	17		+	$	17
B				58		+		33		+		33		+		33

a-1.	What is the NPV of each project if the discount rate is 10%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project	NPV
A	$
B	$

a-2.

Which project has the higher NPV?

	Project B
	Project A

b-1.	What is the profitability index of each project? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project	Profitability index
A
B

b-2.

Which project has the higher profitability index?

	Project B
	Project A

c-1.

Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects?

	Project B
	Project A

c-2.

Which project is most attractive to a firm that is limited in the funds it can raise?

	Project B
	Project A
	Both

rev: 03_16_2015