You are considering the following two projects and can take only one. Your cost of capital is 10.9%. The cash flows for the two projects are as follows ($ million): a. What is the IRR of each project? b. What is the NPV of each project at your cost of capital? c. At what cost of capital are you indifferent between the two projects? d. What should you do?

Quickbooks Online Accounting
3rd Edition
ISBN:9780357391693
Author:Owen
Publisher:Owen
Chapter10: Financial Statements And Reports
Section: Chapter Questions
Problem 2.3C
icon
Related questions
icon
Concept explainers
Topic Video
Question

#29

Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Year 0
Year 1
Project
A
- $98
$23
B
- $98
$48
Print
Year 2
$31
$39
Done
Year 3
$39
$31
Year 4
$48
$20
-
Transcribed Image Text:Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 Year 1 Project A - $98 $23 B - $98 $48 Print Year 2 $31 $39 Done Year 3 $39 $31 Year 4 $48 $20 -
You are considering the following two projects and can take only one. Your cost of capital is 10.9%. The cash flows for the two projects are as follows ($ million):
a. What is the IRR of each project?
b. What is the NPV of each project at your cost of capital?
c. At what cost of capital are you indifferent between the two projects?
d. What should you do?
a. What is the IRR of each project?
The IRR for project A is
The IRR for project B is
b. What is the NPV of each
The NPV for project A is $
%. (Round to one decimal place.)
%. (Round to one decimal place.)
project at your cost of capital?
million. (Round to two decimal places.)
The NPV for project B is $
million. (Round to two decimal places.)
c. At what cost of capital are you indifferent between the two projects?
You will be indifferent if the cost of capital is %. (Round to one decimal place.)
d. What should you do?
Given your cost of capital, which project would you choose? (Select the best choice below.)
O A. You should invest in project B, as it has the higher NPV.
O B. You should invest in project A, as it has the higher IRR.
O C. You should invest in project A, as it has the higher NPV.
O D. You should invest in project B, as it has the higher IRR.
Transcribed Image Text:You are considering the following two projects and can take only one. Your cost of capital is 10.9%. The cash flows for the two projects are as follows ($ million): a. What is the IRR of each project? b. What is the NPV of each project at your cost of capital? c. At what cost of capital are you indifferent between the two projects? d. What should you do? a. What is the IRR of each project? The IRR for project A is The IRR for project B is b. What is the NPV of each The NPV for project A is $ %. (Round to one decimal place.) %. (Round to one decimal place.) project at your cost of capital? million. (Round to two decimal places.) The NPV for project B is $ million. (Round to two decimal places.) c. At what cost of capital are you indifferent between the two projects? You will be indifferent if the cost of capital is %. (Round to one decimal place.) d. What should you do? Given your cost of capital, which project would you choose? (Select the best choice below.) O A. You should invest in project B, as it has the higher NPV. O B. You should invest in project A, as it has the higher IRR. O C. You should invest in project A, as it has the higher NPV. O D. You should invest in project B, as it has the higher IRR.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Quickbooks Online Accounting
Quickbooks Online Accounting
Accounting
ISBN:
9780357391693
Author:
Owen
Publisher:
Cengage
Excel Applications for Accounting Principles
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning