Question: Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: Project A Project B Year Cash Flow Cash

Two projects being considered by a firm are mutually exclusive and have the following projected cash flows:

Project A Project B

Year Cash Flow Cash Flow

0 -$600,000 -$600,000

1 245,500 $150,000

2 245,500 -$ 40,000

3 245,500 $450,000

The firms cost of capital is 8 percent. Based only on the information given,

  1. What are the NPV for Project A and B? Which project do you choose based on the NPV?

  1. What are the payback periods for Project A and B? Which project do you choose based on the payback periods?

  1. What are the IRRs for Projects A and B? Which project do you choose based on the IRR?

  1. What are the MIRR for Projects B? When would be appropriate to use MIRR instead of IRR? Explain.

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