Question: Consider two mutually exclusive R&D projects that Savage Tech is considering. Assume the discount rate for both projects is 9 percent. Project A: Server CPU


Consider two mutually exclusive R&D projects that Savage Tech is considering. Assume the discount rate for both projects is 9 percent. Project A: Server CPU 13 micron processing project By shrinking the die size to .13 micron, the company will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs. Project B: New telecom chip project Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a large amount of up-front capital, but success of the project will lead to large cash flows later on. Year Project A Project B 0 $665,000 $866,000 1 332,000 247,000 2 343,000 348,000 3 251,000 352,000 4 176,000 398,000 5 112,000 483,000 Onmu Complete the following table: (Do not round intermediate calculations. Enter the IRR as a percent. Round your profitability index (PI) answers to 3 decimal places, e.g., 32.161, and other answers to 2 decimal places, e.g., 32.16.) Project A Project B NPV IRR % % PI 5 112,000 483,000 Complete the following table: (Do not round intermediate calculations. Enter the IRR as a percent. Round your profitability index (PI) answers to 3 decimal places, e.g., 32.161, and other answers to 2 decimal places, e.g., 32.16.) Project A Project B NPV IRR % % PI What is the incremental IRR of investing in the larger project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Incremental IRR %
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