Year Project A Project B 0 $200 $200 1 80 100 2 80 100 3 80 100 4 80

a) If the opportunity cost of capital is 10%, which of these projects is worth pursuing? Explain.

b) Suppose that you can choose only one of these projects. Which would you choose? The discount rate is still 10%. Justify your reasoning.

c) Which project would you choose if the opportunity cost of capital were 16%?

d) What are the internal rates of return on projects A and B?

e) In light of your answers to Problems a) d), is there any reason to believe that the project with the higher IRR is the better project?