Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$77,500 -$77,500 43,000 21,500 29,000 28,000 23,000 34,000 21,000 41,000 1234 a-1. What is the IRR for each of these projects? (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 11 percent. What is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2.Which project will you choose if you apply the NPV decision rule? a-1. Project A Project B a-2. Project acceptance b-1. Project A Project B b-2. Project acceptance $ $ 21.50 % 19.58% Project A 15,426.54 16,463.27 Project B

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
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vi. 

Piercy, LLC, has identified the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0
-$77,500
-$ 77,500
1
43,000
21,500
2
29,000
28,000
3
34,000
4
41,000
23,000
21,000
a-1. What is the IRR for each of these projects? (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 11 percent. What is the NPV for each of these projects?
(Do not round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
b-2.Which project will you choose if you apply the NPV decision rule?
a-1. Project A
Project B
a-2. Project acceptance
b-1. Project A
Project B
b-2. Project acceptance
$
$
21.50 %
19.58%
Project A
15,426.54
16,463.27
Project B
Transcribed Image Text:Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$77,500 -$ 77,500 1 43,000 21,500 2 29,000 28,000 3 34,000 4 41,000 23,000 21,000 a-1. What is the IRR for each of these projects? (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 11 percent. What is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2.Which project will you choose if you apply the NPV decision rule? a-1. Project A Project B a-2. Project acceptance b-1. Project A Project B b-2. Project acceptance $ $ 21.50 % 19.58% Project A 15,426.54 16,463.27 Project B
c-1. Over what range of discount rates would you choose Project A? (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? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
c-3.At what discount rate would you be indifferent between these two projects? (Do not
round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Project A
Project B
Indifferent interest rate
Above
Below
an interest rate of
an interest rate of
%
%
%
Transcribed Image Text:c-1. Over what range of discount rates would you choose Project A? (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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c-3.At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Project A Project B Indifferent interest rate Above Below an interest rate of an interest rate of % % %
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