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Frank Holey, the CEO of Doughnuts Ltd, is evaluating the following two mutually exclusive investments: YEAR 0$ YEAR 1$ YEAR 2$ Project A -8000 4820

Frank Holey, the CEO of Doughnuts Ltd, is evaluating the following two mutually exclusive investments:

YEAR 0$

YEAR 1$

YEAR 2$

Project A

-8000

4820

5860

Project B

-5000

2850

4220

Determine the IRR for each. If Frank chooses the project with the higher IRR, under what circumstances will his choice be incorrect? At what discount rate would he be indifferent between the two projects?[15 marks]

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