Better plc is comparing two mutually exclusive projects, whose details are given below. The company's cost of

Question:

Better plc is comparing two mutually exclusive projects, whose details are given below.

The company's cost of capital is 12 per cent.

(a) Using the net present value method, which project should be accepted?
(b) Using the internal rate of return method, which project should be accepted?
(c) If the cost of capital increases to 20 per cent in year 5, would your advice change?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...