What is the incremental IRR of investing in larger project

Assignment Help Financial Management

Reference no: EM132006052

Consider two mutually exclusive R&D projects that Savage Tech is considering. Assume the discount rate for both projects is 9 percent. Project A: Server CPU .13 micron processing project By shrinking the die size to .13 micron, the company 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 –$ 665,000 –$ 866,000 1 332,000 247,000 2 343,000 348,000 3 251,000 352,000 4 176,000 398,000 5 112,000 483,000 Complete the following table: (Do not round intermediate calculations. Enter the IRR as a percent. Round your profitability index (PI) answers to 3 decimal places, e.g., 32.161, and other answers to 2 decimal places, e.g., 32.16.) Project A Project B NPV $ $ IRR % % PI What is the incremental IRR of investing in the larger project? (Do not round intermediate calculations. Enter your answer as a percent and round your answer to 2 decimal places, e.g., 32.16.) Incremental IRR %

Reference no: EM132006052

Questions Cloud

What will be the amount of monthly mortgage payment : The house you want to buy costs $269 thousand. What will be the amount of your monthly mortgage payment?

All of the net working capital will be recouped : All of the net working capital will be recouped at the end of the project.

Best recommendations after researching the market : You are asked to make TWO best recommendations after researching the market, and clearly identify the factors you consider in the process.

Net working capital will be recouped at the end of project : All of the net working capital will be recouped at the end of the project. What is the project's NPV if the tax rate is 35%?

What is the incremental IRR of investing in larger project : Consider two mutually exclusive R&D projects that Savage Tech is considering. What is the incremental IRR of investing in the larger project?

Futures market hedge : Futures Market Hedge - Describe three differences if you need a futures contract in (a) instead of a forward contract.

Maximum you should be willing to pay for investment : Other investments of similar riskiness available to you are yielding 11.8 percent return. What is the maximum you should be willing to pay for this investment?

Appreciating at same average annual rate : If the skeleton keeps appreciating at the same average annual rate, what would be its value 25 years from now?

What is the yield to call for this bond : What is the yield to call (YTC) for this bond if the current price is 108 percent of par value?

User Account

All Pages