Question

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

   

Year	Cash Flow (A)				Cash Flow (B)
0	–$	28,000			–$	28,000
1		13,400				3,800
2		11,300				9,300
3		8,700				14,200
4		4,600				15,800

  

a-1	What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

  

	IRR
Project A	%
Project B	%

  

a-2

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

	Project A
	Project B

a-3

Is this decision necessarily correct?

	Yes
	No

b-1	If the required return is 10 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

	NPV
Project A	$
Project B	$

b-2

Which project will the company choose if it applies the NPV decision rule?

	Project A
	Project B

  

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

  

Discount rate

%

Answer 1