Question: Your company is choosing two equally risky, mutually exclusive projects with the cash flows shown below. Your cost of capital is 10%. To answer the

Your company is choosing two equally risky, mutually exclusive projects with the cash flows shown below. Your cost of capital is 10%.

To answer the question, you need to find the NPV and the IRR for both projects first. Make sure you show the NPV and IRR for both projects:

Year 0 1 23 Project S Cash Flow -$1,000 500 500 500 




 How much value will your firm sacrifice if it selects the project with the higher IRR.


Year 0 1 23 Project S Cash Flow -$1,000 500 500 500 Year 0 1 2 3 45 Project L Cash Flow -$2,000 668.76 668.76 668.76 668.76 668.76

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