Garage, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...

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Finance

Garage, Inc., has identified the following two mutuallyexclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 –$ 29,400 –$ 29,400
1 14,800 4,500
2 12,700 10,000
3 9,400 15,600
4 5,300 17,200
1. What is the IRR for each of these projects? (Do not roundintermediate calculations. Enter your answers as a percent roundedto 2 decimal places, e.g., 32.16.)
IRR
Project A %
Project B %
2. Using the IRR decision rule, which project should the companyaccept?
A) Project A
B) Project B
3. Is this decision necessarily correct?
A) Yes
B) No
4. If the required return is 12 percent, what is the NPV foreach of these projects? (Do not round intermediate calculations andround your answers to 2 decimal places, e.g., 32.16.)
NPV
Project A $
Project B $
5. Which project will the company choose if it applies the NPVdecision rule?
A) Project A
B) Project B
6.At what discount rate would the company be indifferent betweenthese two projects? (Do not round intermediate calculations. Enteryour answer as a percent rounded to 2 decimal places, e.g.,32.16.)
Discount rate %

Answer & Explanation Solved by verified expert

4.1 Ratings (754 Votes)

1 IRR is that discount rate for which NPV is 0 The rate is to be found by trial and error as below PROJECT A Year Cash flows PVIF at 20 PV at 20 PVIF at 19 PV at 19 0 29400 100000 29400 100000 29400 1 14800 083333 12333 084034 12437 2 12700 069444 8819 070616 8968 3 See Answer

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