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

Question

    

   

What is the IRR for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

  

  

Using the IRR decision rule, which project should the company accept?

  

If the required return is 12 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

   

   

At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

Garage, Inc., has identified the following two mutually exclusive projects:

Explanation / Answer

a1.

a-2. company should accept project B

a-3. Yes

NPV=4240.45

b-2. as per NPV decision rule project B should be selected because it is giving the higher NPV

A 0 1 -29100 -29100 1 0.909 14,500 13180.5 2 0.826 12,400 10242.4 3 0.751 9,250 6946.75 4 0.683 5,150 3517.45 cash inflow=33887 NPV=4787 0 1 -29100 -29100 1 0.833 14,500 12078.5 2 0.694 12,400 8605.6 3 0.578 9,250 5346.5 4 0.482 5,150 2482.3 cash inflow=28512 NPV=(588) IRR=lower discount rate+ lower rate NPV/Lower rate NPV-Highier rate NPV * difference in discount rate 10+4787/4787+588*10 18.90% B 0 1 -29100 -29100 1 0.909 4,350 3954.15 2 0.826 9,850 8136.1 3 0.751 15,300 11490.3 4 0.683 16,900 11542.7 cash inflow=35123.25 NPV=6023.25 0 1 -29100 -29100 1 0.833 4,350 3623.55 2 0.694 9,850 6835.9 3 0.578 15,300 8843.4 4 0.482 16,900 8145.8 cash inflow=27448.68 NPV=(1651.32) IRR=lower discount rate+ lower rate NPV/Lower rate NPV-Highier rate NPV * difference in discount rate 10+6023.25/6023.25+1651.32*10 17.84%

a-2. company should accept project B

a-3. Yes

b-1. A 0 1 -29100 -29100 1 0.892 14,500 12934 2 0.797 12,400 9882.8 3 0.711 9,250 6576.75 4 0.635 5,150 3270.25 cash inflow=32663.8 NPV=3563.8

B 0 1 -29100 -29100 1 0.892 4,350 3880.2 2 0.797 9,850 7850.45 3 0.711 15,300 10878.3 4 0.635 16,900 10731.5 cash inflow=33340.45

NPV=4240.45

b-2. as per NPV decision rule project B should be selected because it is giving the higher NPV

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