Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount

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Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for both projects is 8 percent.

Year ..............Dry Prepreg ..............Solvent Prepreg

0 ....................−$1,700,000 .....................−$750,000

1 .......................1,100,000 ........................375,000

2 .........................900,000 ........................600,000

3 .........................750,000 ........................390,000

a. Based on the payback period, which project should be taken?

b. Based on the NPV, which project should be taken?

c. Based on the IRR, which project should be taken?

d. Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Corporate Finance

ISBN: 978-0077861759

11th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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