Consider the cash flows for the two projects below: .................................................Project A............... Project B Initial cash outlay............................. $10,000.................

Question:

Consider the cash flows for the two projects below:
.................................................Project A............... Project B
Initial cash outlay............................. $10,000................. $50,000
Net cash inflows-year 1..................... $5,000.................. 22,000
Net cash inflows-year 2..................... $5,000.................. 22,000
Net cash inflows-year 3..................... $5,000.................. 22,000
The company uses a of 10% for evaluating projects.
Required:
a. Using the tables, calculate the for the two projects. Which project yields the greater NPV?
b. Using the tables, calculate the (IRR) for the two projects. Which project has the higher rate of return?
c. Why does the ranking per NPV favor project B over project A even though project A is more profitable per the IRR criterion?
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...