Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for...
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Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for ADM is 11 percent. Project A: Server CPU .13 micron processing project By shrinking the die size to .13 micron, ADM will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs. Project B: New telecom chip project Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a large amount of up-front capital, but success of the project will lead to large cash flows later on.
Year
Project A
Project B
0
$
725,000
$
932,000
1
344,000
259,000
2
361,000
366,000
3
257,000
364,000
4
182,000
416,000
5
124,000
501,000
Project A
Project B
NPV
__$
__$
IRR
___
%
___
%
PI
____
__
What is the incremental IRR of investing in the larger project?
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