A company is evaluating two investment opportunities with the following cash flows: Year Project A Cash Flow
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Question:
A company is evaluating two investment opportunities with the following cash flows:
Year | Project A Cash Flow | Project B Cash Flow |
---|---|---|
0 | -$100,000 | -$200,000 |
1 | $40,000 | $60,000 |
2 | $50,000 | $70,000 |
3 | $60,000 | $80,000 |
4 | $70,000 | $90,000 |
5 | $80,000 | $100,000 |
The company's cost of capital is 12%.
a) Calculate the net present value (NPV) of each project.
b) Calculate the internal rate of return (IRR) for each project.
c) Based on your results, which project would you recommend the company to invest in?
Related Book For
Corporate Finance and Investment decisions and strategies
ISBN: 978-1292064062
8th edition
Authors: Richard Pike, Bill Neale, Philip Linsley
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