You are considering the following two projects and can take only one. Your cost of...
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Finance
You are considering the following two projects and can take only one. Your cost of capital is 11.9%. The cash flows for the two projects are as follows ($ million):
| Project | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 |
|---|---|---|---|---|---|
| A | -$103 | 28 | 34 | 44 | 53 |
| B | -$103 | 53 | 44 | 34 | 24 |
What is the IRR of each project? Which project should you choose?
a. IRR of Project A = 17.7%, IRR of Project B = 21.7%. Choose project A.
b. IRR of Project A = 17.7%, IRR of Project B = 21.7%. Choose project B.
c. IRR cannot be used to compare these projects. Choose project A because it has a higher NPV.
d. IRR of Project A = 11.9%, IRR of Project B = 17.7%. Choose project B.
C was incorrect.
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