Question

# Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the...

 Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for both projects is 11 percent.
 Year Dry Prepreg Solvent Prepreg 0 –\$ 1,740,000 –\$ 770,000 1 1,104,000 395,000 2 908,000 640,000 3 754,000 398,000

 a. What is the payback period for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

 b. What is the NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

 c. What is the IRR for both projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

 d. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Dry:
Payback=1+(1740000-1104000)/908000=1.700440529

Solvent:
Payback=1+(770000-395000)/640000=1.5859375

Dry:
NPV=-1740000+1104000/1.11+908000/1.11^2+754000/1.11^3=542866.0655

Solvent:
NPV=-770000+395000/1.11+640000/1.11^2+398000/1.11^3=396308.3829

Dry:
IRR:
0=-1740000+1104000/(1+IRR)+908000/(1+IRR)^2+754000/(1+IRR)^3
=>IRR=29.549%

Solvent:
IRR:
0=-770000+395000/(1+IRR)+640000/(1+IRR)^2+398000/(1+IRR)^3
=>IRR=38.367%

Incremental IRR:
0=-1740000+1104000/(1+IRR)+908000/(1+IRR)^2+754000/(1+IRR)^3-(-770000+395000/(1+IRR)+640000/(1+IRR)^2+398000/(1+IRR)^3)
=>IRR=20.996%