Question: Project A and Project B are mutually exclusive. Project A has an IRR of 22.5, and Project B has an IRR of 30.8. The two

Project A and Project B are mutually exclusive. Project A has an IRR of 22.5, and Project B has an IRR of 30.8. The two projects happen to have equal net present value at a discount rate of 16.25%. The firm's cost of capital is 12 percent. Explain with a graph, which project creates more value and which project should be chosen. Explain with calculations.

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SOLUTION The net present value NPV of each project can be calculated using the formula NPV Initial Investment Cash Flows 1Discount RatePeriod where th... View full answer

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