What is the IRR for each of this project (range: 10-16%)? Using the IRR decision rule, which project should the company accept? How do you interpret IRR of a project?
What is the IRR for each of this project (range: 10-16%)? Using the IRR decision rule, which project should the company accept? How do you interpret IRR of a project?
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
CRAYON corporation has identified the following two mutually exclusive projects:
|
YEAR |
Cash flow ( A) |
Cash flow ( B) |
|
0 |
-$300,000 |
-$300,000 |
|
1 |
68,950 |
135,000 |
|
2 |
83,900 |
105,500 |
|
3 |
93,200 |
75,000 |
|
4 |
105,600 |
55,600 |
|
5 |
115,600 |
45,600 |
- What is the IRR for each of this project (range: 10-16%)? Using the IRR decision rule, which project should the company accept? How do you interpret IRR of a project?
- If the required return is 15%, what is the NPV of these projects? Which project will the company choose if it applies the NPV decision rule? How do you interpret NPV of a project?
- Calculate the Payback period and discounted pay back period of these projects! Which project should the company accept? What are the differences of payback period and discounted payback period in investment decision making? Which one is more reliable?
- At what discount rate would the company be indifferent between these two projects? Explain how you do the calculation!
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