1) Consider projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV at 10%

A -34,500 24,600 24,600 + $8,194

B -54,500 37,500 37,500 + 10,583

a. Calculate IRRs for A and B.

(Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Project IRR A % B %

b. Which project does the IRR rule suggest is best? Project A Project B

c. Which project is really best? Project A Project B

2)Consider projects A and B with the following cash flows:

C_{0} |
C_{1} |
C_{2} |
C_{3} |
||||||||||||||

A | - | $ | 33 | + | $ | 17 | + | $ | 17 | + | $ | 17 | |||||

B | - | 58 | + | 33 | + | 33 | + | 33 |

a-1. What is the NPV of each project if the discount rate is 10%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a-2. Which project has the higher NPV?

Project B

Project A

b-1. What is the profitability index of each project? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b-2. Which project has the higher profitability index?

Project B

Project A

c-1. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects?

Project B

Project A

c-2. Which project is most attractive to a firm that is limited in the funds it can raise?

Project B

Project A

Both

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