Question
1) Garage, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $ 29,500 $ 29,500 1 14,900
1) Garage, Inc., has identified the following two mutually exclusive projects:
Year | Cash Flow (A) | Cash Flow (B) | |||||
0 | $ | 29,500 | $ | 29,500 | |||
1 | 14,900 | 4,550 | |||||
2 | 12,800 | 10,050 | |||||
3 | 9,450 | 15,700 | |||||
4 | 5,350 | 17,300 | |||||
a-1 | What is the IRR for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
IRR | ||
Project A | % | |
Project B | % | |
a-2 | Using the IRR decision rule, which project should the company accept? | ||||
|
a-3 | Is this decision necessarily correct? | ||||
|
b-1 | If the required return is 10 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
NPV | ||
Project A | $ | |
Project B | $ | |
b-2 | Which project will the company choose if it applies the NPV decision rule? | ||||
|
c. | At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
Discount rate | % |
2) What is the IRR of the following set of cash flows? (Round your answer to 2 decimal places. (e.g., 32.16))
Year | Cash Flow | ||
0 | $ | 16,900 | |
1 | 7,600 | ||
2 | 8,900 | ||
3 | 7,400 | ||
IRR | % |
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