Question

You are considering the following two projects and can only take one. Your cost of capital is 11.4 %. The cash flows for the two projects are as follows​ ($ million):

Project	Year 0	Year 1	Year 2	Year 3	Year 4
A	−$102	$27	$31	$39	$49
B	−$102	$49	$39	$31	$20

a. What is the IRR of each​ project? b. What is the NPV of each project at your cost of​ capital? c. At what cost of capital are you indifferent between the two​ projects? d. What should you​ do?

a. The IRR for project A is nothing​%. ​ (Round to one decimal​ place.) The IRR for project B is nothing​%. ​(Round to one decimal​ place.)

b. The NPV for project A is ​$ nothing million. ​(Round to two decimal​ places.) The NPV for project B is ​$ nothing million. ​(Round to two decimal​ places.)

c. You will be indifferent if the cost of capital is nothing​%. ​(Round to one decimal​ place.)

d. Given your cost of​ capital, which project would you​ choose? ​(Select the best choice​ below.)

A. You should invest in project Upper A​, as it has the higher NPV.

B. You should invest in project Upper B​, as it has the higher IRR.

C. You should invest in project Upper A​, as it has the higher IRR.

D. You should invest in project Upper B​, as it has the higher NPV.

Answer 1