Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 66,000 −$ 66,000 1 42,000 28,400 2 36,000 32,400 3 24,000 38,000 4 15,200 24,400 a-1. What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. If you apply the IRR decision rule, which project should the company accept? b-1. Assume the required return is 12 percent. What is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. Which project will you choose of you apply the NPV decision rule? c-1. Over what range of discount rates would you choose Project A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. Over what range of discount rates would you choose Project B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d. At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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Piercy, LLC, has identified the following two mutually exclusive projects:

Year	Cash Flow (A)	Cash Flow (B)
0		−$	66,000	−$	66,000
1			42,000		28,400
2			36,000		32,400
3			24,000		38,000
4			15,200		24,400


a-1.	What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
a-2.	If you apply the IRR decision rule, which project should the company accept?
b-1.	Assume the required return is 12 percent. What is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b-2.	Which project will you choose of you apply the NPV decision rule?
c-1.	Over what range of discount rates would you choose Project A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2.	Over what range of discount rates would you choose Project B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
d.	At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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Bruin, Incorporated, has identified the following two mutually exclusive projects:

Year	Cash Flow (A)	Cash Flow (B)
0	−$ 66,000	−$ 66,000
1	42,000	28,400
2	36,000	32,400
3	24,000	38,000
4	15,200	24,400

a-1. What is the IRR for each of these projects?

a-2. If you apply the IRR decision rule, which project should the company accept?

b-1. Assume the required return is 12 percent. What is the NPV for each of these projects?

b-2. Which project will you choose of you apply the NPV decision rule?

c-1. Over what range of discount rates would you choose Project A?

c-2. Over what range of discount rates would you choose Project B?

d. At what discount rate would you be indifferent between these two projects?

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