#10:

Mutually Exclusive Investments Consider the following two mutually exclusive investments. Calculate the IRR for each. Under what circumstances will the IRR and NPV criteria rank the two projects differently Problem 10 Year Investment A -$100 Investment B -$100 Piercy, LLC, has identified the following two mutually NPV versus IRR exclusive projects: Year Cash Flow (A) Cash Flow (B) -$77,500 -$77,500 21,500 28,000 43,000 29,000 23,000 21,000 34,000 41,000 a. What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? b. If the required return is 11 percent, what is the NPV for each of these projects? Which project will you choose if you apply the NPV decision rule? c. Over what range of discount rates would you choose Project A? Project B? At what discount rate would you be indifferent between these two projects? Explain. Mutually Exclusive Investments Consider the following two mutually exclusive investments. Calculate the IRR for each. Under what circumstances will the IRR and NPV criteria rank the two projects differently Problem 10 Year Investment A -$100 Investment B -$100 Piercy, LLC, has identified the following two mutually NPV versus IRR exclusive projects: Year Cash Flow (A) Cash Flow (B) -$77,500 -$77,500 21,500 28,000 43,000 29,000 23,000 21,000 34,000 41,000 a. What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? b. If the required return is 11 percent, what is the NPV for each of these projects? Which project will you choose if you apply the NPV decision rule? c. Over what range of discount rates would you choose Project A? Project B? At what discount rate would you be indifferent between these two projects? Explain