Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$ 58,000 1 21, 200 2 3 4 -$ 58,000 34,000 28,000 20,000 13,600 25,200 30,000 25,200 a-1. What is the IRR for each of these projects? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. If you apply the IRR decision rule, which project should the company accept? b-1. Assume the required return is 14 percent. What is the NPV for each of these projects? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b-2. Which project will you choose of you apply the NPV decision rule? c-1. Over what range of discount rates would you choose Project A? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. c-2. Over what range of discount rates would you choose Project B? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places a 32.16

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
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Bruin, Incorporated, has identified the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
-$ 58,000
-$ 58,000
34,000
21, 200
28,000
25,200
30,000
25, 200
0
1
1234
a-1. What is the IRR for each of these projects?
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
a-2. If you apply the IRR decision rule, which project should the company accept?
b-1. Assume the required return is 14 percent. What is the NPV for each of these projects?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
b-2. Which project will you choose of you apply the NPV decision rule?
c-1. Over what range of discount rates would you choose Project A?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
c-2. Over what range of discount rates would you choose Project B?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
d. At what discount rate would you be indifferent between these two projects?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
a-1. Project A
Project B
a-2.
b-1.
b-2.
c-1.
c-2.
d.
20,000
13,600
Project A
Project B
Discount rate
Project A
$
$
28.30 %
25.71 %
14,921.37
15,156.64
%
%
%
Transcribed Image Text:es Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 58,000 -$ 58,000 34,000 21, 200 28,000 25,200 30,000 25, 200 0 1 1234 a-1. What is the IRR for each of these projects? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. If you apply the IRR decision rule, which project should the company accept? b-1. Assume the required return is 14 percent. What is the NPV for each of these projects? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b-2. Which project will you choose of you apply the NPV decision rule? c-1. Over what range of discount rates would you choose Project A? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. c-2. Over what range of discount rates would you choose Project B? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. d. At what discount rate would you be indifferent between these two projects? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a-1. Project A Project B a-2. b-1. b-2. c-1. c-2. d. 20,000 13,600 Project A Project B Discount rate Project A $ $ 28.30 % 25.71 % 14,921.37 15,156.64 % % %
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