Question
Garage, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $ 29,700 $ 29,700 1 15,100 4,650
Garage, Inc., has identified the following two mutually exclusive projects: |
Year | Cash Flow (A) | Cash Flow (B) | |||||
0 | $ | 29,700 | $ | 29,700 | |||
1 | 15,100 | 4,650 | |||||
2 | 13,000 | 10,150 | |||||
3 | 9,550 | 15,900 | |||||
4 | 5,450 | 17,500 |
a-1 | What is the IRR for each of these projects?(Do not round intermediate calculations. Enter your answers as a percent rounded 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 12 percent, what is the NPV for each of these projects?(Do not round intermediate calculations and round your 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Discount rate | %
|
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