posted by Gibbons on .
Project A requires an initial outlay of $6,000,000 but will return $4,000,000 at the end of each year 1, 2, 3 and 4 whereas project B requires an initial outlay of $2,400,000 but will return $3,500,000 at the end of years 1, 2, 3 and 4.
(i) calculate the NPV of each project if the discount rate is 5% compounded annually. On the basis of this, which project would you invest in?
(ii) estimate the IRR for each of these projects. On the basis of the IRR which project would you prefer?