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Assume that you are working at a manufacturing company and trying to decide between the following...

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Question

Finance

Assume that you are working at a manufacturing company andtrying to decide between the following two projects:

Year-End Cash Flows $ thousands)

Project

0

1

2

A

-27

16

21

B

-77

40

50

Q1. If the cost of capital is 8%, use the incremental IRR ruleto make the decision.

Q2. If the cost of capital is the same as the Q1, determine theNPV of each project.

Answer & Explanation Solved by verified expert
3.8 Ratings (492 Votes)
Answer A Cost of Capital 8 For Calculating Incremental IRR we have to calculate the difference in project cash flows BA and calculate IRR of that Year 0 1 2 Cash Flow 27 16 21 Cash Flow 77 40 50 Incremental Cash FlowBA 50 24 29    See Answer
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Transcribed Image Text

Assume that you are working at a manufacturing company andtrying to decide between the following two projects:Year-End Cash Flows $ thousands)Project012A-271621B-774050Q1. If the cost of capital is 8%, use the incremental IRR ruleto make the decision.Q2. If the cost of capital is the same as the Q1, determine theNPV of each project.

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