Bruin, Inc. has identified the following mutually exclusive projects. 0 1 2 3 4 Cash Flows Project A ($37,500) $17,300 $16,200 $13,800 $7,600 Project B ($37,500) $5,700 $12,900 $16,300 $27,500 a. What is the IRR for each of these projects? b. Which project should be selected under the IRR rule? c. If the required return for each project were 11%, what is the NPV of each project. d. Which project should be selected under the NPV rule? e. How would you reconcile this conflict in project selection?
Bruin, Inc. has identified the following mutually exclusive projects. 0 1 2 3 4 Cash Flows Project A ($37,500) $17,300 $16,200 $13,800 $7,600 Project B ($37,500) $5,700 $12,900 $16,300 $27,500 a. What is the IRR for each of these projects? b. Which project should be selected under the IRR rule? c. If the required return for each project were 11%, what is the NPV of each project. d. Which project should be selected under the NPV rule? e. How would you reconcile this conflict in project selection?
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section10.4: Internal Rate Of Return (irr)
Problem 3ST
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Transcribed Image Text:Bruin, Inc. has identified the following mutually exclusive projects.
0
1
2
3
4
Cash
Flows
Project A
($37,500)
$17,300 $16,200 $13,800
$7,600
Project
B
($37,500)
$5,700
$12,900
$16,300
$27,500
a. What is the IRR for each of these projects?
b. Which project should be selected under the IRR rule?
c. If the required return for each project were 11%, what is the NPV of each project.
d. Which project should be selected under the NPV rule?
e. How would you reconcile this conflict in project selection?
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