Finance

Answer 1
Internal Rate of Return  20
(Trial and Error method used, supported by Excel calculations)

The firm should invest in the project provided that the opportunity cost of capital is less than 20, preferably having a small margin to make formidable profits.
Condition IRR  Cost of Capital

Answer 2
The NPVs of the two options are
NPV(Red Pig)  81.86
NPV(Caffeine Delight)  79.10

The IRR rule works in this scenario because both the projects are mutually exclusive and have a single IRR that is more than the cost of capital. Thus the choice to be made is between the two options. Based on the higher IRR, Caffeine Delight should be the chosen drink.
The NPV rule does not work in this situation because it gives conflicting results in comparison to the IRR method.

Answer 3
Change in PV   EMBED Equation.DSMT4  
Change in PV  63.15

The Present Value rises by 63.15.

Answer 4

 EMBED Equation.DSMT4
 EMBED Equation.DSMT4

Answer 5

Interest Rate   EMBED Equation.DSMT4
Interest Rate  16.67

Interest Rate   EMBED Equation.DSMT4
Interest Rate  18.52

Answer 6
The expected rate of return is
ER   EMBED Equation.DSMT4
ER  15