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Problem - NPV versus IRR
Garage, Inc., has identified the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
-$29,700
1
15,100
4,650
2
13,000
10,150
3
9,550
15,900
4
5,450
17,500
a-1. What is the IRR for each of these projects?
a-2. Using the IRR decision rule, which project should the company accept?
a-3. Is this decision necessarily correct?
b-1. If the required return is 12 percent, what is the NPV for each of these projects?
b-2. Which project will the company choose if it applies the NPV decision rule?
c. At what discount rate would the company be indifferent between these two projects?
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