You are considering the following two projects and can take only one. Your cost of capital is 10.7%. The cash flows for the two projects are as follows ($ million): a. What is the IRR of each project? b. What is the NPV of each project at your cost of capital? c. At what cost of capital are you indifferent between the two projects? d. What should you do? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) a. What is the IRR of each project? Year 0 Year 1 Year 2 Year 3 Project A B $24 The IRR for project A is%. (Round to one decimal place.) $31 $38 - $102 - $102 $49 $38 $31 The IRR for project B is%. (Round to one decimal place.) b. What is the NPV of each project at your cost of capital? The NPV for project A is $ million. (Round to two decimal places.) Done The NPV for project B is $ million. (Round to two decimal places.) c. At what cost of capital are you indifferent between the two projects? You will be indifferent if the cost of capital is %. (Round to one decimal place.) Print
You are considering the following two projects and can take only one. Your cost of capital is 10.7%. The cash flows for the two projects are as follows ($ million): a. What is the IRR of each project? b. What is the NPV of each project at your cost of capital? c. At what cost of capital are you indifferent between the two projects? d. What should you do? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) a. What is the IRR of each project? Year 0 Year 1 Year 2 Year 3 Project A B $24 The IRR for project A is%. (Round to one decimal place.) $31 $38 - $102 - $102 $49 $38 $31 The IRR for project B is%. (Round to one decimal place.) b. What is the NPV of each project at your cost of capital? The NPV for project A is $ million. (Round to two decimal places.) Done The NPV for project B is $ million. (Round to two decimal places.) c. At what cost of capital are you indifferent between the two projects? You will be indifferent if the cost of capital is %. (Round to one decimal place.) Print
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 21P: Your division is considering two investment projects, each of which requires an up-front expenditure...
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Transcribed Image Text:You are considering the following two projects and can take only one. Your cost of capital is 10.7%. The cash flows for the two projects are as follows ($ million):
a. What is the IRR of each project?
b. What is the NPV of each project at your cost of capital?
c. At what cost of capital are you indifferent between the two projects?
d. What should you do?
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
a. What is the IRR of each project?
Year 0
Year 1
Year 2
Year 3
Project
A
The IRR for project A is %. (Round to one decimal place.)
$24
$31
$38
- $102
- $102
B
$49
$38
$31
The IRR for project B is%. (Round to one decimal place.)
b. What is the NPV of each project at your cost of capital?
The NPV for project A is $
million. (Round to two decimal places.)
Done
The NPV for project B is $
million. (Round to two decimal places.)
c. At what cost of capital are you indifferent between the two projects?
You will be indifferent if the cost of capital is%. (Round to one decimal place.)
d. What should you do?
Given your cost of capital, which project would you choose? (Select the best choice below.)
OA. You should invest in project B, as it has the higher NPV.
B. You should invest in project A, as it has the higher NPV.
C. You should invest in project B, as it has the higher IRR.
O D. You should invest in project A, as it has the higher IRR.
Print
Year 4
$49
$21
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