You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. Required rate of return on Project A is 10% and on project B is 13%.
|
Project A
|
|
Project B
|
|
Year
|
CFs
|
|
Year
|
CFs
|
|
0
|
-75,000
|
|
0
|
-70,000
|
|
1
|
19,000
|
|
1
|
10,000
|
|
2
|
48,000
|
|
2
|
16,000
|
|
3
|
12,000
|
|
3
|
72,000
|
a) Calculate the Net Present Value (NPV) of both projects. Which project should the firm choose based on the NPV criteria?
b) Calculate the Internal Rate of Return (IRR) of both projects. Which project should the firm choose based on the IRR criteria?