Question
Romboski, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $ 65,000 $ 65,000 1 41,000 27,500
Romboski, LLC, has identified the following two mutually exclusive projects:
Year | Cash Flow (A) | Cash Flow (B) | ||||||
0 | $ | 65,000 | $ | 65,000 | ||||
1 | 41,000 | 27,500 | ||||||
2 | 35,000 | 31,500 | ||||||
3 | 23,500 | 37,000 | ||||||
4 | 15,000 | 24,500 | ||||||
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? |
Requirement 2: | |
(a) | Assume the required return is 11 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? |
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 |
@ % |
(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 |
@ % |
(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 | % |
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