Root Products is trying to decide which of the following projects to invest in:

Question

Root Products is trying to decide which of the following projects to invest in: . Project A costs $270,000 and offers seven annual net cash inflows of $62,000. Project B costs $385,000 and offers nine annual net cash inflows of $67,000. Compute the IRR of each project and use this information to identify the better investment. Click the icon to view the present value annuity table. Click the icon to view the future value annuity table. Click the icon to view the present value table. Click the icon to view the future value table First, compute the IRR of each project. The IRR for Project A is between 16% and 18% between 14% and 16% between 12% and 14% between 10% and 12%

Explanation / Answer

Project A: PV factor for IRR = 270000/62000= 4.355 The IRR is between 12% and 14% Project B: PV factor for IRR = 385000/67000= 5.746 The IRR is between 10% and 12%

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