MUST SHOW WORK USING THESE FORMULAS:

NPV = CF (PVIFAr, t) - CFo

IRR = 0 = CF (PVIFA r,t) - CFo

Part1; Good old XYZorp (they're back!) is considering two mutually exclusive projects, A & B in order to expand their product line. After letting the cost accountants out of their cages, it was determined that project A's initial investment must be $42,400, while project B will cost $60,000.

Project A has projected cash inflows of $25,000 per year for three years. Project B's inflows are more variable: $10,000 in year 1; $30,000 in year 2; and $40,000 in its final year.

The firm's cost of capital is 12%. YES - this IS important!

Using NPV analysis, if the NPV for project B = + $ 1,320 (yes, I did the computation for you!), which project do you prefer? In other words - which project will have the higher NPV.

Part 2

Given the information for project A in problem P-2, what is this project's IRR?