Question: A firm is considering two projects, A and B. Each project will last for 4 years. The projects are MUTUALLY EXCLUSIVE. The projected cash flows

A firm is considering two projects, A and B. Each project will last for 4 years. The projects are MUTUALLY EXCLUSIVE. The projected cash flows for each project are shown below:

Year	0	1	2	3	4
Project A	-20.00	9.00	7.00	6.00	4.00
Project B	-30.00	10.00	10.00	11.00	13.00

The cost of capital facing the firm is 7.00%.

What is the NPV of project A at the cost of capital?

What is the NPV of project B at the cost of capital?

The projects are mutually exclusive. Using the NPV decision rule, what is your decision based on the results of part A and part B? (A, B, BOTH, or NONE)

What is the IRR of project A?

What is the IRR of project B?

Assume that the projects are MUTUALLY EXCLUSIVE. Which project would the IRR rule tell you to select? (A, B, BOTH, NONE)

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