The Hyatt Group Inc., has identified the following two mutually exclusive projects:
Cash Flows Cash Flows
Year Project A Project B
0 -$10,000 -$10,000
1 200 5,000
2 500 6,000
3 8,200 500
4 4,800 500
What is the IRR of each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct?
If the required rate of return is 9 percent, what is the NPV of each of the projects? Which project will you choose if you apply the NPV decision rule?
Over what range of discount rates would you choose project A? Project B? At what discount rate would you be indifferent between these two projects? Explain.