Year Project A Project B 0 -425,000 -500,000 1 200,000 280,000 2 210,000 220,000 3 175,000...

Year	Project A	Project B
0	-425,000	-500,000
1	200,000	280,000
2	210,000	220,000
3	175,000	180,000
4	175,000	180,000
5	175,000	180,000

Use the IRR approach to determine which project to choose.
Graph the NPV profiles for each project.
At what rate will the two projects have the same NPV?

Expert Solution

a) Project A has higher IRR of 35.16% based on the NPV of cash flows. Hence Project A has to be selected.

Year	0	1	2	3	4	5
Project A	(425,000)	200,000	210,000	175,000	175,000	175,000
Project B	(500,000)	280,000	220,000	180,000	180,000	180,000

Project A	35.16%
Project B	34.46%

b) Applying the IRR formula, NPV is same at $67,498 at IRR rate of 27.09%

jeff jeffy answered 11 hours ago

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