Romboski, LLC, has identified the following two mutually exclusive projects: Year _________Cash Flow (A) ____________Cash Flow (B)

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

Year _________Cash Flow (A) ____________Cash Flow (B)

0 ...................... −$65,000 .......................... −$65,000

1 ......................... 34,000 ............................. 19,000

2 ........................ 27,000 ............................. 25,000

3 ........................ 21,000 ............................. 29,000

4 ........................ 17,000 ............................. 34,000

What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct?

If the required return is 11 percent, what is the NPV for each of these projects? Which project will you choose if you apply the NPV decision rule?

Over what range of discount rates would you choose Project A? Project B? At what discount rate would you be indifferent between these two projects? Explain.

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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Essentials of Corporate Finance

ISBN: 978-0078034756

8th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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