Scale Differences

The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $44 million on a large-scale, integrated plant that will provide an expected cash flow stream of $6 million per year for 20 years. Plan B calls for the expenditure of $14 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $2.7 million per year for 20 years. The firm's cost of capital is 9%.

A.) 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 ____%

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	$____

C.) What is the NPV for this Project ?? Round your answer to the nearest dollar. $____

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

E.) Graph the NPV profiles for Plan A, Plan B, and Project ?. Select the correct graph.