Complete the following table: (Do not round intermediate calculations. Enter the IRR as a percent. Round your profitability index (PI) answers to 3 decimal places, e.g., 32.161, and other answers to 2 decimal places, e.g., 32.16.) Project A Project B NPV $ $ IRR % % PI What is the incremental IRR of investing in the larger project? (Do not round intermediate calculations. Enter your answer as a percent and round your answer to 2 decimal places, e.g., 32.16.) Incremental IRR %
Complete the following table: (Do not round intermediate calculations. Enter the IRR as a percent. Round your profitability index (PI) answers to 3 decimal places, e.g., 32.161, and other answers to 2 decimal places, e.g., 32.16.) Project A Project B NPV $ $ IRR % % PI What is the incremental IRR of investing in the larger project? (Do not round intermediate calculations. Enter your answer as a percent and round your answer to 2 decimal places, e.g., 32.16.) Incremental IRR %
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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Question
Consider two mutually exclusive R&D projects that Savage Tech is considering. Assume the discount rate for both projects is 8 percent.
| Project A: | Server CPU .13 micron processing project |
| By shrinking the die size to .13 micron, the company will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs. |
| Project B: | New telecom chip project |
| Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a large amount of up-front capital, but success of the project will lead to large cash flows later on. |
| Year | Project A | Project B | ||||
| 0 | –$ | 705,000 | –$ | 910,000 | ||
| 1 | 340,000 | 255,000 | ||||
| 2 | 355,000 | 360,000 | ||||
| 3 | 255,000 | 360,000 | ||||
| 4 | 180,000 | 410,000 | ||||
| 5 | 120,000 | 495,000 | ||||
Complete the following table: (Do not round intermediate calculations. Enter the
| Project A | Project B | ||||
| $ | $ | ||||
| IRR | % | % | |||
| PI | |||||
What is the incremental IRR of investing in the larger project? (Do not round intermediate calculations. Enter your answer as a percent and round your answer to 2 decimal places, e.g., 32.16.)
Incremental IRR %
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