Question: Burns Auto has the following two mutually exclusive projects available. Year Project R Project S 0 -60,000 -85,000 1 21,000 19,000 2 24,000 21,000 3
Burns Auto has the following two mutually exclusive projects available.
| Year | Project R | Project S |
| 0 | -60,000 | -85,000 |
| 1 | 21,000 | 19,000 |
| 2 | 24,000 | 21,000 |
| 3 | 17,000 | 30,000 |
| 4 | 11,000 | 37,000 |
| 5 | 9,000 | 13,000 |
- What is the NPV for each of the projects at 10%. Which project will you choose if you apply the NPV decision rule?
- What is the IRR for both the projects? Using IRR decision rule, which project will you choose?
- What is the cross-over rate? Over what discount rates would you choose Project R? Project S?
- At what discount rate would you be indifferent between the two projects?
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