Question

Time	Proj A	Proj B
0	(1,000,000)	(500,000)
1	100,000	300,000
2	300,000	150,000
3	400,000	100,000
4	500,000	50,000

a) Calculate the IRR for each project and the incremental IRR (if it exists). Round your answers to 2 decimal places.

b) Calculate the NPV for each project using a discount rate of 8%

c) If these projects are mutually exclusive, and a discount rate of 8% is used, identify which project(s) you would accept? Clearly explain the logic behind your decision.

d) If these projects are independent, and a discount rate of 8% is used, identify which project(s) you would accept? Clearly explain the logic behind your decision.

e) You do not need to construct an NPV profile graph for this answer, but use the project IRRs and incremental IRR (if it exists) to explain how the choice of projects is sensitive to the discount rate used. Clearly explain all of the conclusions that can be drawn from the information

Answer 1

I can only answer 4 subparts at a time.

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