year cash flow (A). cash flow (B)

0. -$39000 $39000

1. $14500 $4500

2. $11300. $9900

3 $9600. $16200

4. $6100. $16800

1. What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct?

2. If the required return is 12%, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?

3. Over what range of discount rates would the company choose Project A? What range would cause the company to choose Project B? At what discount rate would the company be indifferent between these two projects? Explain. (10 marks)

4. What is the payback period for each of these projects? Which project will the company choose if it applies the payback period decision rule?

5. If the required return is 12%, what is the profitability index for each of these projects? Which project will the company choose if it applies the profitability index decision rule?

Answer rating: 100% (QA)

Answer To solve this problem well calculate the Internal Rate of Return IRR Net Present Value NPV and Payback Period for each project 1 Calculate IRR ... View the full answer