Problem 12-15 Scale Differences

The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, integrated plant that will provide an expected cash flow stream of $8 million per year for 20 years. Plan B calls for the expenditure of $15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $3.4 million per year for 20 years. The firm's cost of capital is 10%.

1. 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	%

2. 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. ____________%