Decision regarding selection of best projects using NPV and IRR.
Henn Corp, Ltd. is examining two investment projects as a part of its expansion plan for the coming year. These two projects are not mutually exclusive. The cost of Project A is $12,950 while the second project (B) is expected to cost $18,625. Henn's cost of capital (required rate of return) is 11.5%. Expected annual cash flows are projected to be as follows:
|
Year
|
Project A
|
Project B
|
|
1
|
3,250.00
|
6,850.00
|
|
2
|
3,250.00
|
6,850.00
|
|
3
|
3,250.00
|
6,850.00
|
|
4
|
3,250.00
|
6,850.00
|
|
5
|
3,250.00
|
6,850.00
|
Each project will last an estimated 5 years with no remaining significant scrap value. Determine the IRR and the NPV for each of these two projects. What should Henn Corp decide about each proposed project.