Question

You are considering the following two projects and can take only one. Your cost of capital is 11.4%.

The cash flows for the two projects are as follows​ ($ million):

Project	Year 0	Year 1	Year 2	Year 3	Year 4
A	−$98	$27	$29	$38	$51
B	−$98	$51	$38	$29	$18

a. What is the IRR of each​ project?

b. What is the NPV of each project at your cost of​ capital?

c. At what cost of capital are you indifferent between the two​ projects?

d. What should you​ do?

a. What is the IRR of each​ project?

The IRR for project A is ???? ​%.(Round to one decimal​ place.)

The IRR for project B is ????​%.(Round to one decimal​ place.)

b. What is the NPV of each project at your cost of​ capital?

The NPV for project A is​ $????million.(Round to two decimal​ places.)

The NPV for project B is $???? million(Round to two decimal​ places.)

c. At what cost of capital are you indifferent between the two​ projects?

You will be indifferent if the cost of capital is?????? ​%.​(Round to one decimal​ place.)

d. What should you​ do?

Given your cost of​ capital, which project would you​ choose? 

(Select the best choice​ below.)

A.You should invest in project A as it has the higher NPV.

B.You should invest in project Upper A as it has the higher IRR.

C.You should invest in project B​,as it has the higher IRR.

D.You should invest in project B​,as it has the higher NPV.

Answer 1

1.
IRR of Project A=15.70%
IRR of Project B=17.65%

2.
NPV of Project A=10.20770854 million
NPV of Project B=11.06626181 million

3.
10.07%

4.
D.You should invest in project B​,as it has the higher NPV.

B-A 98 27 29 38 51 98 512 38 29 1833 4 17.65%| 9 NPV@11.4% 10.20770854 11.06626181 10.07%| 15.70% IIRR @114%1 10.2015.704 1106625181E07%]