Consider two mutually exclusive R&D projects that ADM is considering. Assume the
ID: 2640726 • Letter: C
Question
Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for ADM is fifteen percent.
Project A: Server CPU .13 micron processing project. By shrinking the die size to .13 micron, ADM will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs.
Project B: New telecom chip project. Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a large amount of up-front capital, but success of the project will lead to large cash flows later on.
Year
A
B
0
-$650,000
-$975,000
1
320,000
260,000
2
320,000
350,000
3
230,000
360,000
4
175,000
400,000
5
120,000
500,000
Requirements of the Assignment
Complete your work in Excel document. Show your work leave your commands or equations in the spreadsheet cells.
Year
A
B
0
-$650,000
-$975,000
1
320,000
260,000
2
320,000
350,000
3
230,000
360,000
4
175,000
400,000
5
120,000
500,000
Explanation / Answer
Project A is Accepted
Net Present Value
Project B is Accepted
Project t=0 t=1 t=2 t=3 t=4 t=5 A -650000 320000 320000 230000 175000 120000 B -975000 260000 350000 360000 400000 500000 Cost of capital 10.0% Internal Rate of Return Project A 28.5% Project B 23.6%Project A is Accepted
Net Present Value
Project A 272212 Project B 404759