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Scale Differences The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $56 million on a large-scale,

Scale Differences

The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $56 million on a large-scale, integrated plant that will provide an expected cash flow stream of $9 million per year for 20 years. Plan B calls for the expenditure of $12 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $3.8 million per year for 20 years. The firm's cost of capital is 11%.

  1. Calculate each project's NPV. Do not round intermediate calculations. Round your answers to the nearest dollar.

    Project A: $

    Project B: $

    Calculate each project's IRR. Round your answers to two decimal places.

    Project A: %

    Project B: %

  2. Set up a Project by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant. Round your answers to the nearest dollar. Use a minus sign to enter cash outflows, if any.

    Year Project Cash Flows
    0

    $

    1-20

    $

    What is the NPV for this Project ? Do not round intermediate calculations. Round your answer to the nearest dollar. Use a minus sign to enter negative value, if any.

    $

    What is the IRR for this Project ? Round your answer to two decimal places.

    %

  3. Select the correct graph for the NPV profiles for Plan A, Plan B, and Project .

    The correct graph is -Select-graph Agraph Bgraph Cgraph DItem 9 .

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