The estimated cashflows for two mutually exclusive projects are shown below.
(A) Using a cost of capital of 14%, which project should be taken based on the NPV amounts?
(B) Calculate the IRR for both projects. Based on the IRR amounts, which project should be taken?
(C) Are your answers to A & B the same? Why or why not?
(D) Using a cost of capital of 17%, which project should be taken based on the NPV amounts?
A B
0 ($400,000) ($1,200,000)
1 $140,000 $410,000
2 $130,000 $350,000
3 $110,000 $330,000
4 $90,000 $270,000
5 $70,000 $210,000
6 $50,000 $150,000
7 $50,000 $150,000
8 $50,000 $150,000