1. It is your first week at your new job. You have been asked to evaluate a choice between two mutually exclusive projec

[answerhappygod]

1. It is your first week at your new job. You have been asked to
evaluate a choice between two mutually exclusive projects, A and
B.
0
1
2
3
NPV (8%)
IRR
A
-10,000
10,000
1,000
1,000
910
16.04%
B
-10,000
1,000
1,000
13,000
2,103
15.72%
C
You remember that Steve Cox, your brilliant instructor from
F542, always said that NPV is the preferred method to evaluate
projects. Unfortunately, your boss, Mr. Beastly, is an active
member of the NIA (National IRR Association) a group which supports
the rights of all Americans to use the Internal Rate of Return
method. You want to recommend project B but you know Mr. Beastly
will prefer A which is favored using the IRR. Show (by copying the
table above to your answer) and explain to Mr. Beastly
why project B is better, and that you can use the IRR method to
prove it.
2. Raphael Restaurant is considering purchase of a $10,000
soufflé maker. The soufflé maker has an economic life of five
years and will be fully depreciated by the straight-line method.
The soufflé maker will have zero salvage value at the end of this
five year project. Each year the machine will produce 2,000
soufflés, with each costing $3 to make and priced at $5. Assume
that the discount rate is 14% and the tax rate is 20
percent. What is the (equal) annual cash flow in years 1-5?