Project A involves an investment of $1 million, and project B involves an investment of $2 million. Both projects have a unique internal rate of return of 20 percent. Is the following statement true or false? Explain your answer. For any discount rate between 0 percent and 20 percent, inclusive, project B has an NPV twice as great as that of project A.
The Profitability Index
2. Suppose the following two mutually exclusive investment opportunities are available to the
DeAngelo Firm. The appropriate discount rate is 10 percent.
|
Year
|
Project Alpha
|
Project Beta
|
|
0
|
-$500
|
-$2,000
|
|
1
|
-300
|
-300
|
|
2
|
700
|
1,800
|
|
3
|
600
|
1,700
|
a. What is the NPV of project alpha and project beta?
b. Which project would you recommend for the DeAngelo Firm?