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 1 year ago
Next > < Previous

Related Solutions

Garage, Inc., has identified the following two mutually exclusive projects. The required rate of return on...
Garage, Inc., has identified the following two mutually exclusive projects. The required rate of return on both projects is 12%. Which project should the company choose and why? Year Cash Flow (A) Cash Flow (B) 0 -$29,000 -$29,000 1 14,400 4,400 2 12,300 9,800 3 9,200 18,500 4 8,100 16,800 A: Choose A because project A has a higher IRR B: Choose B because project B has a higher NPV C: Choose B because project B has shorter payback period...
Bumble’s Bees, Inc., has identified the following two mutually exclusive projects: Bumble’s Bees, Inc., has identified...
Bumble’s Bees, Inc., has identified the following two mutually exclusive projects: Bumble’s Bees, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -17,000 -17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 Calculate the Internal Rate of Return (IRR) for each of the project using Trial and Error method. Apply the IRR decisionrule, which project should the company accept? If the required return is 11 percent, evaluate the...
An investor has identified the following two mutually exclusive projects:    Year Cash Flow (A) Cash...
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        12,300        3 12,200        18,800        4 9,200        22,800          Required: (a) What is the IRR for Project A?    (b) What is the IRR for Project B?    (c) If the required return is 9 percent, what is the NPV for Project A?    (d)...
Respond to the following: Parkallen Inc. has identified the following two mutually exclusive projects: Year Cash...
Respond to the following: Parkallen Inc. has identified the following two mutually 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 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? If the required return is 11%, what is the NPV for each of these projects? Which project will the...
Wilson’s Market is considering two mutually exclusive projects that will not be repeated. The required rate...
Wilson’s Market is considering two mutually exclusive projects that will not be repeated. The required rate of return is 13.9 percent for Project A and 12.5 percent for Project B. Project A has an initial cost of $54,500, and should produce cash inflows of $16,400, $28,900, and $31,700 for Years 1 to 3, respectively. Project B has an initial cost of $69,400, and should produce cash inflows of $0, $48,300, and $42,100, for Years 1 to 3, respectively. Based on...
Wilson’s Market is considering two mutually exclusive projects that will not be repeated. The required rate...
Wilson’s Market is considering two mutually exclusive projects that will not be repeated. The required rate of return is 13.9 percent for Project A and 12.5 percent for Project B. Project A has an initial cost of $54,500, and should produce cash inflows of $16,400, $28,900, and $31,700 for Years 1 to 3, respectively. Project B has an initial cost of $69,400, and should produce cash inflows of $0, $48,300, and $42,100, for Years 1 to 3, respectively. Based on...
Question 3 Consider the following two mutually exclusive projects. The required rate of return is 10%....
Question 3 Consider the following two mutually exclusive projects. The required rate of return is 10%. Part A: Calculate the NPV for each project. 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 Part B: Calculate the IRR for each project. Part C: Calculate the payback period for each project. Part D: Suppose you were the manager deciding between these two projects. Would you prefer to use the payback period decision rule...
Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of...
Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of return is 16%. Use this information for the next 3 questions. Year Project A Cash Flow Project B Cash Flow 0 ($50,000) ($20,000) 1 15,000 6,000 2 15,000 6,000 3 15,000 6,000 4 13,500 5,400 5 13,500 5,400 6 6,750 5,400 Calculate the net present value of project A. Answers: a.342.28 b.1564.25 c.1245.11 d. 2709.21 e. 3802
Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of...
Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of return is 15%. Use this Year         Project A Cash Flow        Project B Cash Flow 0                         -$40,000                           -$30,000 1                              12,000                            9,000 2                              12,000                             9,000 3                              12,000                             9,000 4                              10,800      8,100 5                              10,800                              8,100 6                              5,400      8,100 9. Which of the following statements is true concerning projects A and B? a) Both NPV and IRR lead to the same investment decision. b) Due to time disparity, IRR indicates that project A should be accepted and NPV indicates that project B...
You are considering the following two mutually exclusive projects that will not be repeated. The required...
You are considering the following two mutually exclusive projects that will not be repeated. The required rate of return is 11.25% for project A and 10.75% for project B. Which project should you accept and why? Year      Project A Project B 0 -48,000 -126,900 1 18,400 69,700 2 31,300 80,900 3 11,700 0 project A; because its NPV is about $335 more than the NPV of project B project A; because it has the higher required rate of return project...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT