Find the Discount Rate Garage, lnc has identified the following two mutually exc

Question

Find the Discount Rate

Garage, lnc has identified the following two mutually exclusive projects: a-1 What is the IRR for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) a-2 Using the IRR decision rule, which project should the company accept? Project A Project B a-3 Is this decision necessarily correct? Yes No b-1 If the required return is 12 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g.. 32.16)) b-2 Which project will the company choose if it applies the NPV decision rule? Project A Project B c. At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Discount rate %

Explanation / Answer

Year A PV(A) B PV(B) 1 15100 13210.85 4650 4068.24 2 13000 9950.64 10150 7769.15 3 9550 6395.36 15900 10647.76 4 5450 3193.09 17500 10253.05 1.143 Total 32749.93 Total 32738.21 Here by trial & error , we get at 14.3% , the PV of the cash inflow of both the projects are same and is the indifferent point.So discount rate is 14.7%.

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