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A- Martin is analyzing a project and has gathered the following data. Based on this...

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Finance

A- Martin is analyzing a project and has gathered the following data. Based on this data,

what is the average accounting rate of return? The firm depreciates it assets using

straight-line depreciation to a zero book value over the life of the asset.

Year Cash Flow Net Income

0 -$642,000 n/a

1 $170,000 $ 9,500

2 $240,000 $79,500

3 $205,000 $44,500

4 $195,000 $34,500

B- The Winston Co. is considering two mutually exclusive projects with the following cash flows:

Project A Project B

Year Cash Flow Cash Flow

0 -$75,000 -$60,000

1 $30,000 $25,000

2 $35,000 $30,000

3 $35,000 $25,000

B-1 what is the IRR of project A?

B-2 What is the IRR of project B?

B-3 Based on the IRR rule, which project should be accepted and why?

B-4 At what required rate of return will the company be indifferent between the two projects?

B-5 If Winston company has a required rate of return of 10%, which project (if any) should it accept and why?

B-6 If the company has a required rate of return of 15%, which project (if any) should it accept and why?

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