Two mutually exclusive R&D projects that Savage Tech is considering. Assume the discount rate for both projects is 8 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 point 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 phone. 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

0 -$705,000 -$910,000

1 $340,000 $255,000

2 $355,000 $360,000

3 $255,000 $360,000

4 $180,000 $410,000

5 $120,000 $495,000

Complete the following table:

Project A Project B

NPV $? $?

IRR %? %?

PI ? ?

What is the incremental IRR of investing in the larger project?

Incremental IRR %?