Question

Garage, Inc., has identified the following two mutually exclusive projects: Year ON+ Cash Flow (A) -$ 29,300 14,700 12,600 9,350 5,250 Cash Flow (B) $ 29,300 4,450 9,950 15,500 17,100 a-1 What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Project A Project B a-2 Using the IRR decision rule, which project should the company accept? O Project A Project B a-3 Is this decision necessarily correct? Yes O No b-1 If 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.) NPV Project A Project B b-2 Which project will the company choose if it applies the NPV decision rule? O Project A O Project B c. At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Discount rate

Answer 1

cash flows YEAR Projec A -$29,300 $14,700 $12,600 $9,350 $5,250 19.24% IRR(B3:37) Project B -$29,300 $4,450 $9,950 $15,500 $17,100 17.81% IRR(C3:07) pv @ 11% 1.0000 0.9009 0.8116 0.7312 0.6587 NPV discounted cash flows Projec A Project B -$29,300.00 -$29,300.00 $13,243.24 $4,009.01 $10,226.44 $8,075.64 $6,836.64 $11,333.47 $3,458.34 $11,264.30 $4,464.66 $5,382.42 incremental cash flows $58,600 $19,150 -$22,550 -$24,850 -$22,350 a-1) Project Al Project B IRR 19.24% 17.81% Project B NO a-2) a-3) b-1) | Project Al Project B $4,464.66 $5,382.42 Project B b-2) 22 c) Discount rate 18.40% IRR(G3:67)