2.

Bruin, Incorporated has identified the following two mutually exclusive projects:

Year	Cash Flow (A)	Cash Flow (B)
0	$ 41,300	$ 41,300
1	19,100	6,300
2	17,800	14,200
3	15,200	17,900
4	8,400	30,300

a-1. What is the IRR for each of these projects?

Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.

a-2. If you apply the IRR decision rule, which project should the company accept?

b-1. Assume the required return is 11 percent. What is the NPV for each of these projects?

Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.

b-2. Which project will you choose if you apply the NPV decision rule?

a-1. Project A	19.75	%
a-1. Project B	18.75	%
a-2. Project acceptance	Project A
b-1. Project A	$7,001.54
b-1. Project B	$8,948.59
b-2. Project acceptance	Project B

In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the "terminal" stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.41. The dividends are expected to grow at 13 percent over the next five years. In five years, the estimated payout ratio will be 30 percent and a benchmark PE will be 19 . The required return is 11 percent. a. What is the target stock price in five years? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the stock price today? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c-1. Over what range of discount rates would you choose Project A? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. c-2. Over what range of discount rates would you choose Project B? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. c-3. At what discount rate would you be indifferent between these two projects? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16