Total Limited is evaluating the feasibility of two possible projects. It cannot do both – they are mutually exclusive. The cash flows are:
Point in time Project A Project B
0 -420 000 -100 000
1 150 000 75 000
2 150 000 75 000
3 150 000 0
4 150 000 0
Required
1. Calculate the internal rate of return (IRR) for each project.
2. Calculate the net present value (NPV) for each project.
3. Compare and explain the results in 1 and 2 and indicate which project the company should undertake and why.