Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Bruin, Incorporated, has identified the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
-$ 59,000
-$ 59,000
1
35,000
2
29,000
3
20,500
4
13,800
22,100
26,100
31,000
25,100
a-1. What is the IRR for each of these projects?
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
a-2. If you apply the IRR decision rule, which project should the company accept?
b-1. Assume the required return is 15 percent. What is the NPV for each of these projects?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
b-2. Which project will you choose of you apply the NPV decision rule?
c-1. Over what range of discount rates would you choose Project A?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
c-2. Over what range of discount rates would you choose Project B?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
d. At what discount rate would you be indifferent between these two projects?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
a-1. Project A
Project B
29.12 %
26.40 %
a-2.
Project A
b-1. Project A
$
14,732.23
Project B
$
14,686.75
b-2.
Project A
c-1.
c-2.
d.
Discount rate
%
%
%
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Transcribed Image Text:Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$ 59,000 -$ 59,000 1 35,000 2 29,000 3 20,500 4 13,800 22,100 26,100 31,000 25,100 a-1. What is the IRR for each of these projects? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. If you apply the IRR decision rule, which project should the company accept? b-1. Assume the required return is 15 percent. What is the NPV for each of these projects? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b-2. Which project will you choose of you apply the NPV decision rule? c-1. Over what range of discount rates would you choose Project A? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. c-2. Over what range of discount rates would you choose Project B? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. d. At what discount rate would you be indifferent between these two projects? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a-1. Project A Project B 29.12 % 26.40 % a-2. Project A b-1. Project A $ 14,732.23 Project B $ 14,686.75 b-2. Project A c-1. c-2. d. Discount rate % % %
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