Question

Consider two mutually exclusive R&D projects that Savage Tech is considering. Assume the discount rate for both projects is 13 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 large amount of up-front capital, but success of the project will lead to large cash flows later on. | |

Year | Project A | Project B | ||||

0 | −$ | 695,000 | −$ | 899,000 | ||

1 | 338,000 | 253,000 | ||||

2 | 352,000 | 357,000 | ||||

3 | 254,000 | 358,000 | ||||

4 | 179,000 | 407,000 | ||||

5 | 118,000 | 492,000 | ||||

Complete the following table: (Do not round
intermediate calculations. Enter the IRR as a percent. Round your
profitability index (PI) answers to 3 decimal places, e.g., 32.161,
and other answers to 2 decimal places, e.g., 32.16.) |

Calculate the NPV, IRR, and PI for Projects A and B |

What is the incremental IRR of investing in the larger project?
(Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g.,
32.16.) |

Answer #1

Consider two mutually exclusive R&D projects that Savage
Tech is considering. Assume the discount rate for both projects is
13 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...

Consider two mutually exclusive R&D projects that Savage
Tech is considering. Assume the discount rate for both projects is
9 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...

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...

Consider two mutually exclusive R&D projects that Savage tech
is considering. assume the discount rate for both projects is 11
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...

Consider two mutually exclusive new product launch projects that
Nagano Golf is considering. Assume the discount rate for both
projects is 11 percent.
Project A: Nagano NP-30. Professional clubs that will take an
initial investment of $980,000 at Time 0. Introduction of new
product at Year 6 will terminate further cash flows from this
project.
Project B: Nagano NX-20. High-end amateur clubs that will take
an initial investment of $718,000 at Time 0. Introduction of new
product at Year 6...

Consider the following cash flows of two mutually exclusive
projects for A–Z Motorcars. Assume the discount rate for both
projects is 12 percent. Year AZM Mini-SUV AZF Full-SUV 0 –$ 525,000
–$ 875,000 1 335,000 365,000 2 210,000 450,000 3 165,000 305,000 a.
What is the payback period for each project? (Do not round
intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.) Payback period AZM Mini-SUV years AZF
Full-SUV years b. What is the NPV for...

Consider two mutually exclusive new product launch projects that
Nagano Golf is considering. Assume the discount rate for both
products is 17 percent.
Project A:
Nagano
NP-30.
Professional
clubs that will take an initial investment of $750,000 at Time
0.
Next five years
(Years 1–5) of sales will generate a consistent cash flow of
$350,000 per year.
Introduction of
new product at Year 6 will terminate further cash flows from this
project.
Project B:
Nagano...

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...

Consider the following cash flows of two mutually exclusive
projects for Tokyo Rubber Company. Assume the discount rate for
both projects is 12 percent.
Year
Dry Prepreg
Solvent Prepreg
0
–$
1,800,000
–$
800,000
1
1,110,000
425,000
2
920,000
700,000
3
760,000
410,000
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...

Consider the following cash flows on two mutually exclusive
projects for the Bahamas Recreation Corporation (BRC). Both
projects require an annual return of 18 percent. Year Deepwater
Fishing New Submarine Ride 0 ?$ 1,040,000 ?$ 2,030,000 1 460,000
1,080,000 2 582,000 890,000 3 510,000 930,000 a-1. Compute the IRR
for both projects. (Do not round intermediate calculations. Enter
your answers as a percent rounded to 2 decimal places (e.g.,
32.16).) IRR Deepwater Fishing % Submarine Ride % a-2. Based on...

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