Question
In: Finance
Hungry Hoagie's has identified the following two mutually exclusive projects. The required rate of the...
Hungry Hoagie's has identified the following two mutually exclusive projects. The required rate of the return for the projects is 13%.
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | ($36,800.00) | ($36,800.00) |
| 1 | $19,150.00 | $6,670.00 |
| 2 | $14,650.00 | $13,170.00 |
| 3 | $12,150.00 | $19,670.00 |
| 4 | $9,150.00 | $23,670.00 |
a. 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? Calculate all values to two
decimal places.
b. If the required return is 13 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?
c. Over what range of discount rates would the company choose Project A? Project B? At what discount rate would the company be indifferent between these two projects? Explain.
Solutions
Expert Solution
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
jeff jeffy answered 2 years agoRelated Solutions
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Year
Cash Flow (A)
Cash Flow (B)
0
-$29,000
-$29,000
1
14,400
4,400
2
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An investor has identified the
following two mutually exclusive projects:
Year
Cash Flow
(A)
Cash Flow
(B)
0
–$39,000
–$39,000
1
19,200
5,800
2
14,700
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12,200
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9,200
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exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
-$29,000
-$29,000
1
14,400
4,300
2
12,300
9,800
3
9,200
15,200
4
5,100
16,800
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Wilson’s Market is considering two mutually exclusive projects that will not be repeated. The required rate...
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Consider the following two mutually exclusive projects. The
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Year
Project A
Project B
0
-$100,000
-$100,000
1
30,000
80,000
2
40,000
20,000
3
60,000
20,000
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Answers:
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