Problem 8-10 NPV versus IRR [LO 3, 4]

Piercy, LLC, has identified the following two mutually exclusive projects:

Year	Cash Flow (A)				Cash Flow (B)
0		$	54,000			$	54,000
1			30,000				17,600
2			24,000				21,600
3			18,000				26,000
4			12,800				25,600

a-1.

What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

a-2.

If you apply the IRR decision rule, which project should the company accept?

b-1.

Assume the required return is 14 percent. What is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

b-2.

Which project will you choose of you apply the NPV decision rule?

c-1.

Over what range of discount rates would you choose Project A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c-2.

Over what range of discount rates would you choose Project B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

d. At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a-1.	Project A		%
	Project B		%
a-2.
b-1.	Project A
	Project B
b-2.
c-1.			%
c-2.			%
d.	Discount rate		%