Consider projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV at 12% A ?3

Question

Consider projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV at 12% A ?31,000 21,800 21,800 + $5,843.11 B ?51,000 34,000 34,000 + 6,461.73 -------------------------------------------------------------------------------- a. Calculate IRRs for A and B. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project IRR A % B % -------------------------------------------------------------------------------- b. Which project does the IRR rule suggest is best? Project A Project B c. Which project is really best? Project A Project B

Explanation / Answer

Hi, Please find the calculations as follows: IRR (Project A) = 26% (with the use of excel) IRR (Project B) = 22% (with the use of excel) Part b) Project A should be accepted as it offers a higher rate of return. Part c) Based on the NPV and IRR, project b should be accepted. Thanks, Aman

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