A firm has a capital budget of $100 which must be spent on 1 of 2 projects, each requiring a present outlay of $100. Project A yields a return of $120 after 1 year, whereas Project B yields $201.14 after 5 years.

Calculate

1. The NPV of each project using a 10% discount rate
2. The IRR of each project

What are the project rankings on the basis of these two investment decision rules? Supposed that you are told that the firm's reinvestment rate is 12% which project should the firms choose?

Answer rating: 100% (QA)

Calculation of NPV Using discount rater10 Year Cash flowA Cash FlowB PV factor11r n Discounted CF A ... View the full answer