Problem 8-10 NPV versus IRR [LO 3, 4]

Romboski, LLC, has identified the following two mutually exclusive projects:

Year	Cash Flow (A)				Cash Flow (B)
0		$	51,000			$	51,000
1			27,000				14,900
2			21,000				18,900
3			16,500				23,000
4			12,200				25,900

Requirement 1:
(a)	What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answer as a percentage roundedto 2 decimal places (e.g., 32.16).)

	Internal rate of return
Project A	%
Project B	%

(b)	If you apply the IRR decision rule, which project should the company accept?
	(Click to select)Project AProject B

Requirement 2:
(a)	Assume the required return is 10 percent. What is the NPV for each of these projects? (Do not round intermediate calculations.Round your answers to 2 decimal places (e.g., 32.16).)

	Net present value
Project A	$
Project B	$

(b)	Which project will you choose if you apply the NPV decision rule?
	(Click to select)Project AProject B

Requirement 3:
(a)	Over what range of discount rates would you choose Project A? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Project A

(Click to select)AboveBelow

@ %

(b)	Over what range of discount rates would you choose Project B? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Project B

(Click to select)AboveBelow

@ %

(c)	At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Discount rate

%