GivenÂ 2 (two-period) Jobs with the following cost and
Job A: will cost $50,000 in year 1 and will yield $84,000 in year 2
Job B: will cost $80,000 in year 1 and will yield $120,000 in year 2
Dwight and James are looking at these 2 jobs and will make choices. Job B looks more attractive by using simple arithmetic in a static world; but since these will occur in different periods, we know that the best way to evaluate each one is by getting the net present value of each job using each individual's discount rates. James is a patient and hard-working individual while Dwight is a happy-go-lucky come what may surfer type.
a. Given 2 discount rates of 30% and 8% and knowing Dwight and James' personalities, assign the discount rate appropriate to each individual. (2 points)
b. Solve for the NPVs of each Job for each individual. (Show your solution). (6 points)
c. Based on the NPVs, which Job will Dwight pick and which Job will James pick? (2 points)
d. Solve for the IRR (show your solution). What does this number (IRR) mean for Dwight or James when they are trying to choose between Jobs A or B?Â (5 points)
(Hint: this is a Chapter 5 topic
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