Question

Projects A and B are mutually exclusive and have the following cash flows:

Year | Project A | Project B |

0 | -$82,000 | -$82,000 |

1 | 34,000 | 0 |

2 | 34,000 | 0 |

3 | 34,000 | 108,000 |

1. What is the crossover rate?

2. Do we have a conflict in ranking between the NPV and IRR methods if the required rate of return is 8%?

3. Which project should be accepted if the required rate of return is 5%?

4. Which project should be accepted if the required rate of return is 12%?

Answer #1

If mutually exclusive projects with normal cash flows are being
analyzed, the net present value (NPV) and internal rate of return
(IRR) methods agree.
Projects Y and Z are mutually exclusive projects. Their cash
flows and NPV profiles are shown as follows.
Year
Project Y
Project Z
0
–$1,500
–$1,500
1
$200
$900
2
$400
$600
3
$600
$300
4
$1,000
$200
If the weighted average cost of capital (WACC) for each project
is 14%, do the NPV and...

6. Understanding the NPV profile If projects are mutually
exclusive, only one project can be chosen. The internal rate of
return (IRR) and the net present value (NPV) methods will not
always choose the same project. If the crossover rate on the NPV
profile is below the horizontal axis, the methods will agree.
Projects Y and Z are mutually exclusive projects. Their cash flows
and NPV profiles are shown as follows. Year Project Y Project Z 0
–$1,500 –$1,500 1...

Projects A and B are mutually exclusive. Project A has cash
flows of −$10,000, $5,100, $3,400, and $4,500 for Years 0 to 3,
respectively. Project B has cash flows of −$10,000, $4,500, $3,400,
and $5,100 for Years 0 to 3, respectively.
B-1 what is the
IRR of project A?
B-2 What is the
IRR of project B?
B-3 Based on
the IRR rule, which project should be accepted and why?
B-4 At what
required rate of...

You've estimated the following cash flows (in $) for two
mutually exclusive projects:
Year
Project A
Project B
0
-5,600
-8,400
1
1,325
1,325
2
2,148
2,148
3
4,193
8,192
The required return for both projects is 8%.
Part 1 : What is the IRR for project A? 3+ Decimals
Part 2 What is the IRR for project B? 3+ Decimals
Part 3 Which project seems better according to the IRR method?
Project A or Project B
Part 4 What...

Tara is evaluating two mutually exclusive capital
budgeting projects that have the following characteristics:
Cash Flows
Year
Project Q
Project R
0
$(4,000)
$(4,000)
1
0
3,500
2
5,000
2,100
IRR
11.8%
28.40%
If the firm's required rate of return (r) is 10 percent, which
project should be purchased?
a.
Both projects should be purchased, because the IRRs for both
projects exceed the firm's required rate of return.
b.
Neither project should be accepted, because their NPVs are too
small...

Tara is evaluating two mutually exclusive capital
budgeting projects that have the following characteristics:
Cash Flows
Year
Project Q
Project R
0
$(4,000)
$(4,000)
1
0
3,500
2
5,000
2,100
IRR
11.8%
28.40%
If the firm's required rate of return (r) is 10 percent, which
project should be purchased?
a.
Both projects should be purchased, because the IRRs for both
projects exceed the firm's required rate of return.
b.
Neither project should be accepted, because their NPVs are too
small...

Two projects being considered are mutually exclusive and have
the following cash flows:
Year
Project A
Project B
0
−$50,000
−$50,000
1
15,625
0
2
15,625
0
3
15,625
0
4
15,625
0
5
1,562
89,500
If the required rate of return on these projects is 13 percent,
which would be chosen and why?
a.
Project B because of higher NPV.
b.
Project B because of higher IRR.
c.
Project A because of higher NPV.
d.
Project A because of...

Two projects being considered are mutually exclusive and have
the following cash flows:
Year
Project A
Project B
0
−$50,000
−$50,000
1
15,625
0
2
15,625
0
3
15,625
0
4
15,625
0
5
1,562
89,500
If the required rate of return on these projects is 13 percent,
which would be chosen and why?
a.
Project B because of higher NPV.
b.
Project B because of higher IRR.
c.
Project A because of higher NPV.
d.
Project A because of...

Kilroy, Inc. is considering two mutually exclusive projects. The
cash flows of the projects are as follows:
Year
Project A
Project B
0
-$2,000,000
-$2,000,000
1
500,000
2
500,000
3
500,000
4
500,000
5
500,000
6
500,000
7
500,000
5,650,000
a. Compute the NPV and IRR for the above two projects, assuming
a 13% required rate of return. NPV for project A=
b. Discuss any potential conflict in evaluating these candidate
projects.
c. What decision should be made regarding these...

Given the following cash flows for a two mutually
exclusive projects (A&B) and assuming 16% cost of
capital; answer the next 2 questions:
year
Project A
Project B
0
-5000
-1000
1
2500
600
2
2500
600
3
2500
600
1) Which project should be accepted, if any and
why?
A: Project B; it has a higher IRR and PI
B: Neither project should be accepted, they both have negative
NPVs
C: Both project should be accepted; they have IRRs greater...

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