Problem: Company K is considering two mutually exclusive projects. The cash flows of the projects are as follows:
Year Project A Project B
0 -$2,000 -$2,000
1 $500
2 $500
3 $500
4 $500
5 $500
6 $500
7 $500 $5,650
a. Compute the NPV and IRR for the above two projects, assuming a 13% required rate of return.
b. Discuss the ranking conflict.
c. Which of these two projects should be chosen?