Question
Hungry Hoagie's has identified the following two mutually exclusive projects. The required rate of the return for the projects is 13%. Year Cash Flow (A)
Hungry Hoagie's has identified the following two mutually exclusive projects. The required rate of the return for the projects is 13%.
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | ($36,800.00) | ($36,800.00) |
| 1 | $19,150.00 | $6,670.00 |
| 2 | $14,650.00 | $13,170.00 |
| 3 | $12,150.00 | $19,670.00 |
| 4 | $9,150.00 | $23,670.00 |
a. What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? Calculate all values to two decimal places.
b. If the required return is 13 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?
c. Over what range of discount rates would the company choose Project A? Project B? At what discount rate would the company be indifferent between these two projects? Explain.
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Financial Accounting The Impact On Decision Makers
Authors: Gary A. Porter, Curtis L. Norton
6th Edition
0324655231, 978-0324655230
