Consider the projects below. Assuming these projects are mutually exclusive, the firm has no other investment opportunities except fairly priced financial securities, and WACC = 12%. Which, if either, project should it invest in and why?

	0	1	2	3
Project 1:
Capital Spending	($1,050,000)
FCF		$500,000	$500,000	$500,000
NPV
IRR	20.2%
Project 2:
Capital Spending	($500,000)
FCF		$450,000	$250,000	$0
NPV
IRR	28.8%

Answer rating: 100% (QA)

To determine which project to invest in we can use the Net Present Value NPV and Internal Rate of Return IRR criteria Both criteria are commonly used in capital budgeting decisions 1 NPV Criterion Pro... View the full answer