Question

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

11.2 %11.2%.

The cash flows for the two projects are as follows​ ($ million):

Project	Year 0	Year 1	Year 2	Year 3	Year 4
A	−$100	$27	$30	$42	$52
B	$100	$ 52	$ 42	$ 30	$21

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

Answer 1