Question

Zayas, LLC, has identified the following two mutually exclusive projects:

Year	Cash Flow (A)				Cash Flow (B)
0		−$	54,000			−$	54,000
1			30,000				17,600
2			24,000				21,600
3			18,000				26,000
4			12,800				25,600

a. What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	Internal rate of return
Project A	%
Project B	%

If you apply the IRR decision rule, which project should the company accept?
  
(Click to select)Project B Project A

b. Assume the required return is 14 percent. What is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	Net present value
Project A	$
Project B	$

  

Which project will you choose if you apply the NPV decision rule?
  
(Click to select)Project B Project A
  
c. Over what range of discount rates would you choose Project A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Project A            (Click to select)Below Above  %

Over what range of discount rates would you choose Project B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Project B            (Click to select)Below Above  %

At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Discount rate             %

Answer 1