Question: Farrah Corporation is considering two projects (see below). For your analysis, assume these projects are mutually exclusive with a required rate of return of 12%.

Farrah Corporation is considering two projects (see below). For your analysis, assume these projects are mutually exclusive with a required rate of return of 12%.

Project 1

Project 2

Initial investment

$185,000

$1,100,000

Cash inflow Year 1

$230,000

$1,450,000

Compute the following for each project:

NPV (net present value)

PI (profitability index)

IRR (internal rate of return)

Which project should be selected? Why?

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