Question

6. You are considering the following two projects and can take only one. Your cost of capital is 11.9%. The cash flows for the two projects are as follows​ ($ million):

Project	Year 0	Year 1	Year 2	Year 3	Year 4
A	-$103	28	34	44	53
B	-$103	53	44	34	24

What is the IRR of each project? Which project should you choose?

Select one:

a. IRR of Project A = 17.7%, IRR of Project B = 21.7%. Choose project A.

b. IRR of Project A = 17.7%, IRR of Project B = 21.7%. Choose project B.

c. IRR cannot be used to compare these projects. Choose project A because it has a higher NPV.

d. IRR of Project A = 11.9%, IRR of Project B = 17.7%. Choose project B.

*Please calculate manually and show step by step, I need a major refresher on IRR and NPV

Answer 1

Answer : (b) IRR of Project A = 17.7%, IRR of Project B = 21.7%. Choose project B.

Excel sheet used to solve the question :

Formula sheet :