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## Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 77,500 $ …

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Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 77,500 $ 77,500 43,000 21,500 29,000 28,000 23,000 34,000 21,000 41,000 NM a- a-1. What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) If you apply the IRR decision rule, which project should the company accept? b-1. Assume the required return is 11 percent. What is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b- Which project will you choose if you apply the NPV decision rule? a-1. Project A Project B a-2. Project acceptance b-1. Project A Project B b-2. Project acceptance 21.50 % 19.58% Project A 15,426.54 16,463.27 Project B $ $ C-1. Over what range of discount rates would you choose Project A? (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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) C-3.At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Project A Project B Indifferent interest rate an interest rate of an interest rate of

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2023-03-15T10:00:11+00:00
2023-03-15T10:00:11+00:00 1 Answer
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a-1. The IRR for Project A is 21.50%, and the IRR for Project B is 19.58%.

If we apply the IRR decision rule, we should choose Project A since it has a higher IRR.

b-1. Assuming a required return of 11%, the NPV for Project A is $15,426.54, and the NPV for Project B is $16,463.27.

If we apply the NPV decision rule, we should choose Project A since it has a higher NPV.

c-1. To determine the range of discount rates over which we should choose Project A, we need to find the discount rate that makes the NPV of Project A equal to zero. Using the NPV formula and some trial and error, we find that the discount rate for Project A is between 14.62% and 14.63%. Therefore, we would choose Project A for discount rates below 14.62%.

c-2. To determine the range of discount rates over which we should choose Project B, we need to find the discount rate that makes the NPV of Project B equal to zero. Using the NPV formula and some trial and error, we find that the discount rate for Project B is between 19.58% and 19.59%. Therefore, we would choose Project B for discount rates above 19.59%.

c-3. To find the discount rate at which we are indifferent between the two projects, we need to set the NPVs of the two projects equal to each other and solve for the discount rate. Using the NPV formula and some algebraic manipulation, we find that the discount rate at which we are indifferent between the two projects is approximately 16.77%.