Management is evaluating two mutually exclusive projects, Thing 1 and thing 2, with the following cash flows: Year.              Thing 1.             Thing 2 1.                   -$10, 000.         -$10,000 2.                         3,293                        0   3.                         3,293.                       0 4.                         3,293.                       0 5.                         3,293.                       0 a. If the required rate on return of both projects is 5%, which project, if either should management choose? Why? b. If the required rate on return of both projects is 8%, which project, if either, should management choose? Why? c. If the required rate of return on both projects is 11%, which project, if either should management choose? Why?

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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Management is evaluating two mutually exclusive projects, Thing 1 and thing 2, with the following cash flows:

Year.              Thing 1.             Thing 2

1.                   -$10, 000.         -$10,000

2.                         3,293                        0  

3.                         3,293.                       0

4.                         3,293.                       0

5.                         3,293.                       0

a. If the required rate on return of both projects is 5%, which project, if either should management choose? Why?

b. If the required rate on return of both projects is 8%, which project, if either, should management choose? Why?

c. If the required rate of return on both projects is 11%, which project, if either should management choose? Why?

d. If the required rate of return on both projects is 14% which project, if either should management choose? Why?

e. On a graph, draw the investment profiles of Thing 1 and Thing 2. Indicate the following items:

- crossover discount rate

- NPV of Thing 1 if the required rate of return is 5%

- NPV of Thing 2 if the required rate of return 5%

- IRR of Thing 1

- IRR of Thing 2

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