Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$ 67,000 -$ 67,000 1 43,000 2 37,000 3 24,500 4 15,400 29,300 33,300 39,000 24,300 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 13 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. Project A Project B b-2. C-1. % C-2. % d. Discount rate %
Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$ 67,000 -$ 67,000 1 43,000 2 37,000 3 24,500 4 15,400 29,300 33,300 39,000 24,300 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 13 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. Project A Project B b-2. C-1. % C-2. % d. Discount rate %
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:Bruin, Incorporated, has identified the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
-$ 67,000
-$ 67,000
1
43,000
2
37,000
3
24,500
4
15,400
29,300
33,300
39,000
24,300
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 13 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. Project A
Project B
b-2.
C-1.
%
C-2.
%
d.
Discount rate
%
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