Question: PI and IRR can be interpreted as measuring a project's bang for the buck as well as its margin for error. Consider Projects A and

PI and IRR can be interpreted as measuring a project's "bang for the buck" as well as its "margin for error." Consider Projects A and B, below. The WACC is 10%.

Year 0 1 2 3 4 5 Project A -$1,000 500 500

a. Calculate the NPV, IRR, and PI for each project. What can you conclude about the two projects?
b. Suppose the outflow at Year 0 is correct but the inflows in Years 1 — 4 are 10% smaller than originally forecast. What can you conclude about the two projects now? Why did this happen?

Year 0 1 2 3 4 5 Project A -$1,000 500 500 500 500 500 Project B - $1,000 3,339 3,339 3,339 3,339 3,339

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