Question: Capital Allocation GHI Inc. is considering two mutually exclusive projects, E and F. Project E requires $1,200 and returns $700 per year for 2 years.

Capital Allocation GHI Inc. is considering two mutually exclusive projects, E and F. Project E requires $1,200 and returns $700 per year for 2 years. Project F requires $1,200 and returns $800 and $500 over the next 2 years.

Requirements:

  1. Determine the IRR for both projects.
  2. Calculate the NPV at discount rates of 6%, 12%, and 18%.
  3. Plot the NPV profiles for both projects.
  4. Recommend the best project if the cost of capital is 12%.

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