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. Simson and Simpson, Inc. with its WACC of 10% has two investment proposals with the...

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Finance

. Simson and Simpson, Inc. with its WACC of 10% has twoinvestment proposals with the following characteristics:
?____________________________________________________________________________
???PROJECT A???PROJECT B
?__________________________??_________________________
?Period ICO Cash Flows ICO Cash Flows
?____________________________________________________________________________
? 0?? $(9,000)? -?$(12,000)? -
? 1???$5,000? $5,000
? 2???$4,000? $5,000
? 3???$3,000? ? $8,000
____________________________________________________________________________
(A).?Compute the internal rate of return for Projects A &B. (5)
(B).?On a graph draw the net present value profiles for eachproject using 5 discount rates. (5)
(C).?Identify the crossover point. What is the significance ofthis point? Which project should be accepted, why? (5)
(D).?Explain the difference between incremental cost andopportunity cost. What are sunk costs and should we consider ?themwhen making capital budgeting decisions? Why

Answer & Explanation Solved by verified expert
3.8 Ratings (551 Votes)
A To calculate IRR we put Outflow Inflow So for project A we have 9000 50001r40001r230001r3 Now by Trial Error method we can find out the IRR Like replace r with 15 we get inflow as 9344 but we want it to be near 9000 so again we put 17 we get 9168 we can put r 18 we get 8935 so r is between 17 and 18 so by interpolation also we can get otherwise by Trial and error if we do r is coming approx 175 If we do Interpolation x1718179000916889359168 so we get 177 approx Similarly    See Answer
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