Question

Question 24 1 pts You are considering the following two mutually exclusive projects. Which project(s) should be recommended? Project A Project B Year Cash Flow Year Cash Flow 0 $75,000 0 -$70,000 1 $19,000 1 $10,000 2 $48,000 2 $16,000 3 $12,000 3 $72,000 Required rate of return: 10 percent (for A) 13 percent (for B) O accept project B and reject project A. accept both project A and project B. O reject both project A and project B. O accept project A and reject project B.

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A B с D E 1 24 2 3 4 5 6 7 Year Project A Project B 0 -$75,000 $70,000 1 $19,000 $10,000 2 $48,000 $16,000 3 $12,000 $72,000 Required rate of return 10% 13% NPV $9,042.07 $1,279.52 Correct: accept project B and reject project A 8 25 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 WN Year Cash Flow 0 -$12,000 1 $5,500 2 $8,000 3 -$1,500 IRR1 0.00% IRR2 -82.55% Correct: You can not apply the IRR rule in this case because there may be multiple IRRs 25

Cell reference -

A B с D 1 2 24 3 0 4 5 6 Year Project A Project B |-75000 |-70000 1 19000 10000 2 48000 16000 3 12000 72000 Required rate of return 0.1 0.13 NPV =NPV(C7,04:06)+c3 =NPV(D7,04:D6)+D3 Correct: accept project B and reject project A 7 ar 0 9 10 11 12 13 25 14 15 16 17 18 19 20 21 22 23 24 Year Cash Flow - 12000 1 5500 2 8000 3 - 1500 IRR1 =IRR(C14:017) IRR2 =IRR(C14:017,-0.9) Correct: You can not apply the IRR rule in this case because there may be multiple IRRS 25

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