What is the IRR for each of these projects? ( Do not round intermediate calculat

Question

What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answer as a percentage roundedto 2 decimal places (e.g., 32.16).)

Assume the required return is 13 percent. What is the NPV for each of these projects? (Do not round intermediate calculations.Round your answers to 2 decimal places (e.g., 32.16).)

             

Over what range of discount rates would you choose Project A? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

         

Over what range of discount rates would you choose Project B? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Romboski, LLC, has identified the following two mutually exclusive projects:

Explanation / Answer

1-a)

IRR of Project A: -53000 + 2900/(1+IRRA) + 23000/(1+IRRA)2 + 17500/(1+IRRA)3+ 12600/(1+IRRA)4 = 23.82%

IRR of Project B : -53000 + 16700/(1+IRRB) + 20700/(1+IRRB)2 + 25000/(1+IRRB)3 + 25700/(1+IRRB)4 = 21.97%

1-b) Company should accept Project A by IRR criteria

2-a)

NPV of Project A: -53000 + 29000/(1.13) + 23000(1.13)2 + 17500/(1.13)3 + 12600/(1.13)4 = $9320.61

NPV of Project B: -53000 + 16700/(1.13) + 20700(1.13)2 + 25000/(1.13)3 + 25700/(1.13)4 = $9803.93

2-b) We will chose Project B by NPV criteria

3-a)

Project A is better than Project B over dicount rate greater than 15% p.a.

3-b) Project B is better than Project A over dicount rate less than 15% p.a.

3-c) AT 14.95% dicount rate we would you be indifferent between these two projects

Rate Project A Project B Difference (A-B) 5.00% $19,965.65 $23,256.82 ($3,291.17) 6.00% $18,398.23 $21,249.94 ($2,851.70) 7.00% $16,906.16 $19,347.21 ($2,441.05) 8.00% $15,485.26 $17,542.55 ($2,057.28) 9.00% $14,131.66 $15,830.27 ($1,698.60) 10.00% $12,841.71 $14,205.07 ($1,363.36) 11.00% $11,611.98 $12,661.98 ($1,050.00) 12.00% $10,439.28 $11,196.38 ($757.10) 13.00% $9,320.61 $9,803.93 ($483.33) 14.00% $8,253.13 $8,480.57 ($227.45) 14.50% $7,737.75 $7,843.60 ($105.85) 14.95% $7,284.02 $7,283.91 $0.11 15.00% $7,234.19 $7,222.50 $11.69 16.00% $6,261.31 $6,026.16 $235.15 17.00% $5,332.15 $4,888.21 $443.94 18.00% $4,444.49 $3,805.51 $638.97 19.00% $3,596.25 $2,775.13 $821.12 20.00% $2,785.49 $1,794.30 $991.19 21.00% $2,010.36 $860.43 $1,149.93 22.00% $1,269.12 ($28.93) $1,298.05 23.00% $560.13 ($876.07) $1,436.20 24.00% ($118.17) ($1,683.16) $1,564.99

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