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Q8 You have identified the following two mutually exclusive project Year Cash Flow (A) Cash Flow (B) 0 -$40,000 -$40,000 1 $20,000 $8,000 2 $16,000
| Q8 | You have identified the following two mutually exclusive project
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| Year | Cash Flow (A) | Cash Flow (B) | ||||||
| 0 | -$40,000 | -$40,000 | ||||||
| 1 | $20,000 | $8,000 | ||||||
| 2 | $16,000 | $16,000 | ||||||
| 3 | $14,000 | $20,000 | ||||||
| 4 | $12,000 | $24,000 | ||||||
| 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? | |||||||||||||||
| b) | If the required return is 9 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? | |||||||||||||||
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The Wall Street Journal Complete Personal Finance Guidebook
Authors: Jeff D. Opdyke
1st Edition
030733600X, 978-0274804573
