Question

Callaway Associates, Inc. is considering the following mutually exclusive projects. Callaway's cost of capital is 12%.

Project A    PROJECT B

_{0 ($25,000) ($80,000)}

_{1 $44,000 $65,000}

_{2 $34,000 $30,000}

_{3 $14,000 $ 0}

_{4 $14,000 $5,000}

_{a. Calculate each project's NPV and IRR.}

_{b. Which project should be undertaken ? Why?}

a.

Answer 1

In the above pictures we have found the Npv and IRR of two projects. These are two Techniques used in capital budgeting for choosing a project.

B) We should choose project A as it has a higher Npv and IRR than project B.