Project Alpha requires an outlay of $10,000 immediately. Project Alpha has a 1-year life and is expected to produce a net cash flow at the end of one year of $20,000. Project Beta, a mutually exclusive alternative to Alpha, requires an outlay of $20,000 immediately. It too is expected to have a 1-year life and to produce a net cash flow at the end of one year of $35,000.
a. Compute the internal rate of return for both projects. Compute the NPV for both projects, using a cost of capital of 10 percent.
b. Which project should be undertaken?