Question 14

Consider two mutually exclusive R&D projects that Savage Tech is considering. Assume the discount rate for both projects 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 -$715, 000 -$921, 000 342, 000 257, 000 358, 000 363, 000 256, 000 362, 000 UT 181, 000 413, 000 122, 000 498, 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. Enter your answer as a