In: Finance
Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marge’s opportunity cost of capital is 12%.
Year |
Project A |
Project B |
0 |
−$20,000 |
−$20,000 |
1 |
15,000 |
2,000 |
2 |
15,000 |
2,500 |
3 |
13,000 |
3,000 |
4 |
3,000 |
50,000 |
Which business opportunity is better? Use IRRA=54.7%, IRRB=33.3%, cross over point=14.1%. (Hint: provide your choice with different discount rate)