Question: A company is deciding between two investment projects, Project A and Project B, which have different initial costs and expected cash flows over a 5-year
A company is deciding between two investment projects, Project A and Project B, which have different initial costs and expected cash flows over a 5-year period. The company's discount rate is 8%. The cash flows are given in the table below:
| Year | Project A Cash Flow | Project B Cash Flow |
|---|---|---|
| 1 | $20,000 | $10,000 |
| 2 | $30,000 | $20,000 |
| 3 | $40,000 | $25,000 |
| 4 | $50,000 | $30,000 |
| 5 | $60,000 | $40,000 |
a) Calculate the net present value (NPV) of each project and determine which project the company should choose based on NPV.
b) Calculate the internal rate of return (IRR) for each project and determine which project the company should choose based on IRR.
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