Question

Consider two mutually exclusive R&D projects that Savage Tech is considering. Assume the discount rate for both projects is 15 percent.

Project A: Server CPU .13 micron processing project By shrinking the die size to .13 micron, the company will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs.

Project B: New telecom chip project Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a larger amount of up-front capital, but success of the project will lead to large cash flows later on.

YEAR	A	B
0	-675,000	-1,150,000
2	330,000	345,000
3	330,000	375,000
4	260,000	385,000
5	195,000	455,000
6	135,000	575,000

	A	B	Implications
NPV
IRR
Incremental IRR
PI

Answer 1