1. Firm evaluates all of its projects by applying the IRR rule.
Year Cash Flow
0 –$ 150,000
1 66,000
2 73,000
3 57,000
Requirement 1:
What is the project’s IRR? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Internal rate of return ______ %
Requirement 2:
If the required return is 16 percent, should the firm accept the project?
Yes or No
2. Consider the following cash flows:
Year Cash Flow
0 –$ 33,000
1 13,900
2 17,800
3 11,300
Required:
What is the IRR of the above set of cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Internal rate of return _____ %
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 %
4. Kerron Company is presented with the following two mutually exclusive projects. The required return for both projects is 19 percent.
Year Project M Project N
0 –$136,000 –$369,000
1 64,900 145,500
2 82,900 194,000
3 73,900 130,500
4 59,900 124,000
Required:
(a)
What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)
IRR
Project M %
Project N %
(b)
What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
NPV
Project M $
Project N $
(c) Which, if either, of the projects should the company accept?
Select one: Project N, Project M, Both, Neither
5.
An investment has an installed cost of $567,382. The cash flows over the four-year life of the investment are projected to be $196,584, $240,318, $188,674, and $156,313.
Requirement 1:
If the discount rate is zero, what is the NPV? (Do not round intermediate calculations.)
NPV $
Requirement 2:
If the discount rate is infinite, what is the NPV? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.)
NPV $
Requirement 3:
At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Discount rate %