Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 66,000 −$ 66,000 1 42,000 28,400 2 36,000 32,400 3 24,000 38,000 4 15,200 24,400 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 12 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 of you apply the NPV decision rule? 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.) d. 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.)
Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 66,000 −$ 66,000 1 42,000 28,400 2 36,000 32,400 3 24,000 38,000 4 15,200 24,400 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 12 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 of you apply the NPV decision rule? 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.) d. 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.)
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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| Piercy, LLC, has identified the following two mutually exclusive projects: |
| Year | Cash Flow (A) | Cash Flow (B) | ||||||
| 0 | −$ | 66,000 | −$ | 66,000 | ||||
| 1 | 42,000 | 28,400 | ||||||
| 2 | 36,000 | 32,400 | ||||||
| 3 | 24,000 | 38,000 | ||||||
| 4 | 15,200 | 24,400 | ||||||
| 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 12 percent. What is the |
| 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? (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.) |
| d. | 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.) |
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Bruin, Incorporated, has identified the following two mutually exclusive projects:
| Year | Cash Flow (A) | Cash Flow (B) |
|---|---|---|
| 0 | −$ 66,000 | −$ 66,000 |
| 1 | 42,000 | 28,400 |
| 2 | 36,000 | 32,400 |
| 3 | 24,000 | 38,000 |
| 4 | 15,200 | 24,400 |
a-1. What is the
a-2. If you apply the IRR decision rule, which project should the company accept?
b-1. Assume the required return is 12 percent. What is the
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?
c-2. Over what range of discount rates would you choose Project B?
d. At what discount rate would you be indifferent between these two projects?
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