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Your factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be $4.92 million per year. Your upfront setup costs to be ready to produce the part would be $7.91 million. Your discount rate for this contract is 7.6%. a. What is the IRR? b. The NPV is $4.86 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule? a. What is the IRR? The IRR is%. (Round to two decimal places.) b. The NPV is $4.86 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule? (Select from the drop-down menu.) The IRR rule agrees with the NPV rule. You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): Year 2 Year 3 Project A Year 0 -$49 Year 1 $24 $18 $22 Year 4 $15 $60 B - $99 $21 $42 $51 a. What are the IRRS of the two projects? b. If your discount rate is 5.1%, what are the NPVs of the two projects? c. Why do IRR and NPV rank the two projects differently? a. What are the IRRS of the two projects? The IRR for project A is%. (Round to one decimal place.) The IRR for project B is%. (Round to one decimal place.) b. If your discount rate is 5.1%, what are the NPVs of the two projects? million. (Round to two decimal places.) If your discount rate is 5.1%, the NPV for project A is S If your discount rate is 5.1%, the NPV for project B is $ million. (Round to two decimal places.) c. Why do IRR and NPV rank the two projects differently? (Select from the drop-down menus.) NPV and IRR rank the two projects differently because they are measuring different things. IRR is measuring value creation, while NPV is measuring return on investment. Because returns do not scale with different levels of investment, the two measures may give different rankings when the initial investments are different. BIEB OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $503 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.7 million and its cost of capital is 12.2%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas proceed with the purchase? d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? GELES a. Prepare an NPV profile of the purchase. To plot the NPV profile we compute the NPV of the project for various discount rates and plot the curve. million. (Round to one decimal place.) million. (Round to one decimal place.) The NPV for a discount rate of 2.0% is $ The NPV for a discount rate of 11.5% is $ The NPV for a discount rate of 17.0% is $ The NPV profile is: million. (Round to one decimal place.) NPV Profile of Cruise Ship Investment a A 1,000+ 900- 8004 700- 600- 500- bons) . OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $503 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.7 million and its cost of capital is 12.2%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas proceed with the purchase? d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? 04 -100- 4 4 10 12 -200- Discount rate (%) b. Identify the IRR on the graph, The approximate IRR from the graph is % (Round your answer to one decimal place.) c. Should OpenSeas go ahead with the purchase? (Select the best choice below.) OA. No, because at a discount rate of 12.2%, the NPV is positive. B. Yes, because at a discount rate of 12.2%, the NPV is negative. OC. No, because at a discount rate of 12.2%, the NPV is negative. OD. Yes, because at a discount rate of 12.2%, the NPV is positive. d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? (Note: Subtract the discount rate from the approximate IRR) The cost of capital estimate can be off by%. (Round to one decimal place.)