Zayas, LLC, has identified the following two mutually exclusive projects Cash Fl

Question

Zayas, LLC, has identified the following two mutually exclusive projects Cash Flow (A)Cash Flow (8) -$54,000 30,000 24,000 18,000 12,800 -$54,000 7,600 21,600 26,000 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 decin Internal rate of return Project A Project B If you apply the IRR decision rule, which project should the company accept? (Click to select) 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 a 32.16.) Net present value Project A Project B Which project will you choose if you apply the NPV decision rule? (Click to select) :

Explanation / Answer

a) As per excel table below
IRR of Project A = 24.78%
IRR of Project B = 22.76%
Project A will be selected because IRR is higher

b) NPV of Project A = 10511.12
NPV of Project B = 10765.61
Based on NPV project B will be selcetd

c) Range over which project A will be selected = 14.93% to 24.78%
Because above 14,93% NPV of A is better than NPV of B and it less than IRR which is 24.78%

Range over which project B will be selected = less than 14.93%( 0 -14.93%)

Discount rate at which you will be indifferent to projects = 14.93%

Best of Luck. God Bless

A B C Year Cash Flow A Cash Flow B Cash Flow A- Cash Flow B 1 0 -54000 -54000 0 2 1 30,000 17600 12400 3 2 24,000 21600 2400 4 3 18,000 26000 -8000 5 4 12,800 25600 -12800 6 IRR IRR(A1:A5) IRR(B1:B5) IRR(C1:C5) 7 IRR 24.78% 22.76% 14.93% 8 Discount Rate 14% 14% NPV NPV(A8,A2:A5)+A1 NPV(A8,B2:B5)+B1 NPV $10,511.12 $10,765.61

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