John & sons is considering two mutually exclusive projects to invest in per the

Question

John & sons is considering two mutually exclusive projects to invest in per the flow’s and IRRs below. The Discount Rate (MARR) for john & sons is 20% compounded annually.

Project # 1

Year:                                    0                             1                              2

Cash flow:                       -$14,000                 +$17,000               +1,400

IRR:       29.17%

Project #2

Year:                              0                                   1                                        2

Cash flow:                 -$10,000                     +$13,000                            +$400

IRR:    33.01%

Which of the two projects (if any) should John & sons invest in?

Show the work manually and with calculaotor please

Explanation / Answer

Project #1 #2

NPV(WN) $ 1139 $ 1111

IRR 29.17% 33.01%

Based on IRR and NPV , John & sons sholud invest in project #2

Observations: There is no much difference in NPV of both projects and Projetc #1 requires high cash outflows than project #2

Present value factor for one year =1/1.20

Working notes:

Project # 1 Year Cash flows PVF@20% DCF 0 -14,000 1 -14000 1 17000 0.833 14167 2 1400 0.694 972 NPV 1139

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