question archive You are informed that the effective annual required rate of return is 10%
You are informed that the effective annual required rate of return is 10%
Subject:FinancePrice: Bought3
You are informed that the effective annual required rate of return is 10%. Cash flows for the projects are indicated in the table below (in thousands of dollars):
Year 0 1 2 3
- A -1,800 600 1,000 1,200
- B 12,000 -600 -10,800 -5,000
For the following problems, show all your work (i.e. express al formulas used with values in place of variables).
- a) Consider Project A and Project B independent projects. Calculate the internal rate of return (IRR) for Project A. Calculate the IRR for the Project B. According to your calculations and the IRR decision criterion, would you recommend Project A, Project B or both?
- b) Consider Project A and Project B mutually exclusive projects. Calculate the PI for the incremental Project A over B. Using the PI decision criterion, what would you recommend?
