Question

In: Finance

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

  1. 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

Solutions

Expert Solution

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 :


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