Question: You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): Project Year 0 Year 1

You are choosing between two projects. The cash flows for the projects are given in the following table ($ million):

Project Year 0 Year 1 Year 2 Year 3 Year 4 A -52 26 22 19 16 B -101 22 38 49 61

a. What are the IRRs of the two projects?

IRR project A is what %

IRR project B is what %

b. If your discount rate is 5.1%, what are the NPVs of the two projects?

If your discount rate is 5.1% the NPV for project A is what?

If your discount rate is 5.1%, the NPV for project B is what?

c. Why do IRR and NPV rank the two projects differently? Choose the right options to compleate the statment.

NPV and IRR rank the two projects differently because they are measuring different things.

NPV or IRR

is measuring value creation, while

NPV or IRR

is measuring return on investment. Because returns do not scale with different levels of investment, the two measures may give different rankings when the initial investments are different.

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