Big Company is evaluating two projects, Project A and Project B. Both projects are of equal risk. Big Company has a WACC of 9%. The expected Free Cash Flows of the projects are as follows: Period 042 1 3 4 Annual Cash Flows Project "A" ($20,000) 4,200 6,000 8,000 11,000 Annual Cash Flows Project "B" ($20,000) 11,000 7,000 6,000 2,000 Compute the Internal Rate of Return (IRR) for "A". Show your inputs/work for partial credit.
Big Company is evaluating two projects, Project A and Project B. Both projects are of equal risk. Big Company has a WACC of 9%. The expected Free Cash Flows of the projects are as follows: Period 042 1 3 4 Annual Cash Flows Project "A" ($20,000) 4,200 6,000 8,000 11,000 Annual Cash Flows Project "B" ($20,000) 11,000 7,000 6,000 2,000 Compute the Internal Rate of Return (IRR) for "A". Show your inputs/work for partial credit.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Big Company is evaluating two projects, Project A and Project B. Both projects are of equal
risk. Big Company has a WACC of 9%. The expected Free Cash Flows of the projects are as
follows:
Period
4
Annual Cash
Flows Project
"A"
($20,000)
4,200
6,000
8,000
11,000
Annual Cash
Flows Project
"B"
($20,000)
11,000
7,000
6,000
2,000
Compute the Internal Rate of Return (IRR) for "A". Show your inputs/work for partial credit.
The Internal Rate of Return of Project "B" is 14.83%. If Projects "A" and "B" are independent,
considering only at the IRR method, which project(s) should Big Company proceed with?
Explain your answer.
Simon
The Internal Rate of Return of Project "B" is 14.83%. If Projects "A" and "B" are mutually
exclusive, considering only at the IRR method, which project(s) should Big Company proceed
with? Explain your answer.
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