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Author Question: McCall Manufacturing has a WACC of 13%. The firm is considering two normal, equally risky, mutually ... (Read 394 times)

majortom123

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on: Aug 7, 2023

Question 1

Levin Company is considering a project that has the following cash flow data. What is the project’s IRR?

Year:

0

1

2

3

4

Cash flows:

–$1,000

$380

$380

$380

$380


◦

15.94%


◦

17.71%


◦

18.68%


◦

19.14%



Question 2

McCall Manufacturing has a WACC of 13%. The firm is considering two normal, equally risky, mutually exclusive, but not repeatable projects. The two projects have the same investment costs, but Project A has an IRR of 18%, while Project B has an IRR of 24%. Which of the following statements is correct?

◦

Each project must have a negative NPV.


◦

Since the projects are mutually exclusive, the firm should always select Project B.


◦

If the crossover rate is 10%, Project B will have the lower NPV.


◦

If the crossover rate is 10%, Project A will have a lower NPV than Project B.

Financial Management: Theory and Practice ¦ Brigham, Ehrhardt, Gessaroli, Nason ¦ 4th Edition
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Marked as best answer by majortom123 on Aug 7, 2023

gcurrens

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Reply #1 on: Aug 7, 2023
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majortom123

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Reply 2 on: Aug 7, 2023
Great answer, keep it coming :)

amynguyen1221

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Reply 3 on: Yesterday
Wow, this really help

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