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 --- Initial investment = $185,000 and Cash inflow year 1 = $230,000

Project 2 --- Initial investment = $1,100,000 and Cash inflow year 1 = $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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