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You have two mutually-exclusive projects. A do-nothing option is available. The first project (P1) has an initial investment of 17.2 million Czech crowns (CZK), and
You have two mutually-exclusive projects. A "do-nothing" option is available. The first project (P1) has an initial investment of 17.2 million Czech crowns (CZK), and the first year's positive cash flow of 25.4 million CZK. The second year cash flow is a positive 5.2 million CZK. The second project (P2) has an initial cash flow in year 0 of a negative 20.2 million CZK. The first year cash flow is a positive 36.2 million CZK. The second year cash flow is a negative 3.2 million CZK. MARR is 18%. (a) The Annual Equivalent Worth of the first project (P1) is: CZK (b) The Annual Equivalent Worth of the second project (P2) is: CZK (C) The Internal Rate of Return of P1 is %. (d) The Internal Rate of Return of P2 is (e) The cash flows for the incremental investment P2-P1 are: - for year 0 CZK - for year 1, CZK, and - for year 2 CZK (1) The Annual Equivalent Worth of the incremental investment P2-P1 is: CZK %. Please note that, if you are (g) The break even interest rates for the incremental investment P2-P1 are as follows. The smaller of the two rates 1*= % and the larger of the two rates iz* = using the built-in function in spreadsheet software to find these rates, you can apply a "guess" of 20% for the first rate (17") and 100% for the second rate (12) %. Please note that the "true"IRR is not one of the break-even interest rates. You can refer to Lecture 22 material, including the Video (h) The Internal Rate of Return of the incremental investment P2-P1 is: Example E22 Based on the incremental analyses using the AEW and IRR criteria, project should be chosen
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