Gunnell Inc. is considering two mutually exclusive 10-year investments. The initial cash outlays and expected net after-tax cash flows are shown below.

Required

1. Using Excel, calculate the NPV and IRR of each project. Assume Gunnell Inc. uses a discount rate of 8%. Round your NPV answer to the nearest dollar and your IRR answer to two decimal points.

2. Which project would you recommend to Gunnell management? Are there strategic or risk factors that might lead you to recommend the project with the lower NPV? Explain with specific evidence.

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Project 1 Project 2 $ (2,500,000) $(1,800,000) 200,000 200,000 Initial Year 1 400,000 375,000 Year 2 Year 3 235,000 350,000 Year 4 350,000 280,000 325,000 450,000 500,000 600,000 700,000 Year 5 325,000 200,000 185,000 170,000 160,000 130,000 Year 6 Year 7 Year 8 Year 9 Year 10 900,000