Romboski, LLC, has identified the following two mutually exclusive projects: Wha
ID: 2742881 • Letter: R
Question
Romboski, LLC, has identified the following two mutually exclusive projects:
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).)
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).)
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).)
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).)
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).)
Year Cash Flow (A) Cash Flow (B) 0 $ 53,000 $ 53,000 1 29,000 16,700 2 23,000 20,700 3 17,500 25,000 4 12,600 25,700Explanation / Answer
Year Cash Flow (A) Cash Flow (B) 0 -53,000 -53,000 1 29,000 16,700 2 23,000 20,700 3 17,500 25,000 4 12,600 25,700 IRR 23.8% 22.0% 1 a Internal Rate of Return Cash Flow (A) 23.8% Cash Flow (B) 22.0% b. By appling the IRR decision rule, project - A should be accepted by the company. Year DF @ 13% Cash Flow (A) PV Cash Flow (B) 0 1 -53,000 -53,000 -53,000 -53000 1 0.885 29,000 25,664 16,700 14779 2 0.783 23,000 18,012 20,700 16211 3 0.693 17,500 12,128 25,000 17326 4 0.613 12,600 7,728 25,700 15762 NPV 10,532 NPV 11078 2.a. NPV Cash Flow (A) 10532 Cash Flow (B) 11078 2.b. By appling the NPV decision rule, project - B should be accepted by the company. 3.a Project A should be accepted over range of 13% to 23.8%,i.e. Cost of Capital to IRR
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