Review Problem $17$ #$20($LO$3),($LO$4)$

A company is examining two mutually exclusive projects. Project $P$ requires an immediate investment of $$300,000$ and produces no profit until the fourth year. Then the expected annual profit is $$120,000$ for Years $4$ to $7$ inclusive. Project $Q$ requires an investment of $$260,000$ now and is expected to generate an annual profit of $$55,000$ in Years $1$ to $7.$ Neither project has any residual value after seven years.

a$.$ Calculate the IRR of each project. $($Round your answers to $1$ decimal place.$)$

The IRR on project $P\%$

The IRR on project $Q\%$

On the basis of their IRRS, which project is preferred?

On the basis of their IRR ranking, is preferred.

b$.$ Which project should be selected if the firm's cost of capital is $10\%?$

should be selected.

c$.$ Which project should be selected if the firm's cost of capital is $6\%?$

should be selected.