Your boss hands you the following information about two mutually exclusive projects. She adds the following: "Our discount rate is 10% and both projects have IRRS over 20%. Unfortunately, we are unable to implement both, so we will go with project A since it has the highest IRR of the two." How would you respond? Give a supporting numerical analysis. Projects A B Cost of Capital 10% 10% Ranking the projects by IRR would lead to results in IRR 570% 22% Initial Cash Flow Cash Flow in One Year $2000 $13,400 $207,400 -$170,000 - decision because the NPV of project A is $ and the NPV of project B is $. This means that project has the higher NPV, which projects being selected by the NPV and IRR rules.
Your boss hands you the following information about two mutually exclusive projects. She adds the following: "Our discount rate is 10% and both projects have IRRS over 20%. Unfortunately, we are unable to implement both, so we will go with project A since it has the highest IRR of the two." How would you respond? Give a supporting numerical analysis. Projects A B Cost of Capital 10% 10% Ranking the projects by IRR would lead to results in IRR 570% 22% Initial Cash Flow Cash Flow in One Year $2000 $13,400 $207,400 -$170,000 - decision because the NPV of project A is $ and the NPV of project B is $. This means that project has the higher NPV, which projects being selected by the NPV and IRR rules.
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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Transcribed Image Text:Your boss hands you the following information about two mutually exclusive projects. She adds the following: "Our discount rate is 10% and both projects have IRRs over 20 %. Unfortunately, we are
unable to implement both, so we will go with project A since it has the highest IRR of the two." How would you respond? Give a supporting numerical analysis.
Projects
A
B
Cost of Capital
10%
10%
Ranking the projects by IRR would lead to
results in
(Round to the nearest dollar as needed.)
IRR
570%
22%
Initial Cash Flow
- $2000
- $170,000
Cash Flow in One Year
$13,400
$207,400
decision because the NPV of project A is $
projects being selected by the NPV and IRR rules.
and the NPV of project B is $. This means that project has the higher NPV, which
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