Problem:
XYZ is evaluating two mutually exclusive projects with the following net cash flows:
Project A
0 years=-$2000
1 year =$300
2 year=$500
3 year=$800
4 year=$1200
Project B
0 years=-$2000
1 year =$1000
2 year=$800
3 year=$500
4 year=$200
1) XYZ's WACC is 10.3% and both projects have the same risk as the firms average project. calculate each projects NPV
2) XYZ's CFO has instructed managers to use the IRR method when choosing between mutually exclusive projects. if managers choose the project with the highest IRR, how much value will be lost?