Question: XYZ Corp is evaluating two projects: Project A: Initial outlay: $8,000, Life: 6 years, Required return: 12% Project B: Initial outlay: $12,000, Life: 4 years,

XYZ Corp is evaluating two projects:

  • Project A: Initial outlay: $8,000, Life: 6 years, Required return: 12%
  • Project B: Initial outlay: $12,000, Life: 4 years, Required return: 15%
  • Cash flows:
    • Project A: $3,000 per year
    • Project B: $5,000 per year for the first 2 years, $3,000 per year for the next 2 years
  • Requirements:
  1. Calculate the NPV for both projects.
  2. Calculate the IRR for both projects.
  3. Determine which project should be selected based on NPV.
  4. Determine which project should be selected based on IRR.

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