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Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for...

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Finance

Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for ADM is 11 percent. Project A: Server CPU .13 micron processing project By shrinking the die size to .13 micron, ADM will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs. Project B: New telecom chip project Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a large amount of up-front capital, but success of the project will lead to large cash flows later on.

Year Project A Project B
0 $ 725,000 $ 932,000
1 344,000 259,000
2 361,000 366,000
3 257,000 364,000
4 182,000 416,000
5 124,000 501,000

Project A Project B
NPV __$ __$
IRR ___ % ___ %
PI ____ __
What is the incremental IRR of investing in the larger project?

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