Trying to understand step by step on how to do the below problem:
Bumble's Bees, Inc. has identified the following two mutually exclusive projects:
|
Year
|
Project A
|
Project B
|
|
0
|
$17,000
|
$17,000
|
|
1
|
8,000
|
2,000
|
|
2
|
7,000
|
5,000
|
|
3
|
5,000
|
9,000
|
|
4
|
3,000
|
9,500
|
- What is the IRR for each of the projects? If you apply the IRR decision rule, which project should the company accept?
- If the required rate is 11 percent, what is the NPV for each of the projects? Which project will you choose if you apply the NPV rule?
- Calculate the payback periods. Which project will you choose if you apply the Payback Period rule?
- Calculate the Profitability Indexes. Which project will you choose if you apply the Profitability Index rule?
- What is you final decision? Explain.