3. Romboski, LLC, has identified the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 −$ 62,000 −$ 62,000
1 38,000 24,800
2 32,000 28,800
3 22,000 34,000
4 14,400 24,800
Requirement 1:
(a)
What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answer as a percentage roundedto 2 decimal places (e.g., 32.16).)
Internal rate of return
Project A %
Project B %
(b) If you apply the IRR decision rule, which project should the company accept?
Select one: Project A or Project B
Requirement 2:
(a)
Assume the required return is 13 percent. What is the NPV for each of these projects? (Do not round intermediate calculations.Round your answers to 2 decimal places (e.g., 32.16).)
Net present value
Project A $
Project B $
(b) Which project will you choose if you apply the NPV decision rule?
Select One: Project A or Project B
Requirement 3:
(a)
Over what range of discount rates would you choose Project A? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Project A @ % _________
Select one : Above or Below
(b)
Over what range of discount rates would you choose Project B? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Project B @ % _____________
Select one: Above or Below
(c)
At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Discount rate %