Question
Garage, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $ 30,000 $ 30,000 1 15,400 4,800
Garage, Inc., has identified the following two mutually exclusive projects: |
Year | Cash Flow (A) | Cash Flow (B) | |||||
0 | $ | 30,000 | $ | 30,000 | |||
1 | 15,400 | 4,800 | |||||
2 | 13,300 | 10,300 | |||||
3 | 9,700 | 16,200 | |||||
4 | 5,600 | 17,800 | |||||
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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