Problem 10-15 Scale Differences

The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $56 million on a large-scale, integrated plant that will provide an expected cash flow stream of $9 million per year for 20 years. Plan B calls for the expenditure of $12 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $3.8 million per year for 20 years. The firm's cost of capital is 11%.

Calculate each project's NPV. Round your answers to the nearest dollar.

Project A	$
Project B	$

Calculate each project's IRR. Round your answers to two decimal places.

Project A	%
Project B	%

Set up a Project by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant.

Year	Project Cash Flows
0	$
1-20	$

What is the NPV for this Project ? Round your answer to the nearest dollar.

$

What is the IRR for this Project ? Round your answer to two decimal places. %

Graph the NPV profiles for Plan A, Plan B, and Project .

Select the correct graph.