Exam2_practice1 - Practice Problems for Exam 2 Part I 1...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Practice Problems for Exam 2 Part I 1. Your company is considering two projects with the following cash flows: Project A Project B Time Cash Flow Cash Flow 0 -22,000 -50,000 1 6,000 20,000 2 7,000 15,000 3 8,000 15,000 4 9,000 13,000 5 10,000 13,000 a) Calculate the IRR for each project. Answer: See attached spreadsheet. b) If these projects are independent , and a required return of 10% is used as the discount rate, identify which project(s) you would accept? Clearly explain the logic behind your decision. Answer: Both. Both have positive NPV and IRR higher than required return. c) If these projects are mutually exclusive, and a required return of 10% is used as the discount rate, identify which project(s) you would accept? Clearly explain the logic behind your decision. Answer: B. Higher NPV at 10%. d) Assume that you can accept only one of the projects (if any are acceptable). Also assume that the CFO is uncertain about what discount rate to use. She is now thinking that perhaps a 14% discount rate is appropriate. Which project would you accept if the required return is 14%?
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern