You are the treasurer for 100 Rock Associates. Your company is interested in making capital investments on all projects that have an IRR greater than 12%. You have identified the following two capital investment projects with their cash flows as follows:

Year Project A Project B

0 - $43,500 - $43,500

1 21,400 6,400

2 18,500 14,700

3 13,800 22,800

4 7,600 25,200

Year 0 cash flows are negative. All other cash flows are positive.

(a) What is the approximate IRR for Project A?

a. Less than 5%

b. 7.6%

c. 12.5%

d. 18.3%

e. 20.5%

f. Greater than 20.5%

(b) What is the approximate IRR for Project B?

a. Less than 5%

b. 9.6%

c. 11.2%

d. 16.7%

e. 17.4%

f. Greater than 20%

(c) The internal rate of return for an investment project is best defined as the:

a. Discount rate that causes the NPV to equal zero

b. Difference between the market rate of interest and the discount rate

c. Market rate of interest less the risk free rate

d. Minimum project acceptance rate set by management

e. Maximum rate that can be earned for a project to be accepted

f. None of the above

(d) What action would you recommend the company take for both of these projects?

a. Accept both projects

b. Accept project A and reject project B

c. Reject project A and accept project B

d. Reject both projects

e. Cant tell because not enough information is given

f. Fire the project managers