1. Define the term internal rate of return (IRR). What is each franchises IRR?
   1. How is the IRR on a project related to the YTM on a bond?
   2. What is the logic behind the IRR method? According to IRR, which franchises should be accepted if they are independent? Mutually exclusive?
   3. Would the franchises IRRs change if the cost of capital changed?
2. Draw NPV profiles for Franchises L and S. At what discount rate do the profiles cross?
3. Look at your NPV profile graph without referring to the actual NPVs and IRRs. Which franchise or franchises should be accepted if they are independent? Mutually exclusive? Explain. Are your answers correct at any cost of capital less than 23.6%?
4. What is the underlying cause of ranking conflicts between NPV and IRR?
5. Define the term net present value (NPV). What is each franchises NPV?

Panel B: Summary of Selected Evaluation Criteria Finding the NPV for Projects S and L FIGURE 10-3 Finding the IRR \begin{tabular}{|c|c|c|c|c|c|c|} \hline & A & B & C & D & E & F \\ \hline 69 & \multicolumn{6}{|c|}{r=14.49%} \\ \hline 69 & \multirow{2}{*}{\begin{tabular}{c} Year = \\ Project S \end{tabular}} & 0 & 1 & 2 & 3 & 4 \\ \hline 90 & & 10,000.00 & 5,000 & 4,000 & 3,000 & \multirow[t]{2}{*}{1,000} \\ \hline 91 & \multirow{6}{*}{ Sum of PVs =} & 4,367.24 & \multirow{2}{*}{\multicolumn{2}{|c|}{}} & & \\ \hline 92 & & 3,051.64 & & & & \\ \hline 93 & & 1,999.09 & & & & \\ \hline 94 & & 582.03 & \multicolumn{4}{|c|}{4} \\ \hline 95 & & $0.00 & \multicolumn{4}{|c|}{=NPV at r=14.489%.NPV=0, so IRR =14.489%} \\ \hline 96 & & & & & & \multirow[b]{4}{*}{4} \\ \hline 97 & IRRs= & 14.49% & \multicolumn{3}{|c|}{= IRR(B90:F90) using IRR function } & \\ \hline 98 & \multirow[b]{2}{*}{ Year =} & & & & & \\ \hline 90 & & 0 & 1 & 2 & 3 & \\ \hline 100 & \multirow[t]{2}{*}{ Project L } & 10,000.00 & 1,000 & 3,000 & 4,000 & \multirow[t]{3}{*}{6,750} \\ \hline 101 & & & & & & \\ \hline 102 & IRRL= & 13.55% & \multicolumn{3}{|c|}{= IRR(B100:F100) using IRR function } & \\ \hline \end{tabular}