Project Alpha requires an outlay of $10,000 immediately. Project Alpha has a 1-year life and is expected

Question:

Project Alpha requires an outlay of $10,000 immediately. Project Alpha has a 1-year life and is expected to produce a net cash flow at the end of one year of $20,000. Project Beta, a mutually exclusive alternative to Alpha, requires an outlay of $20,000 immediately. It too is expected to have a 1-year life and to produce a net cash flow at the end of one year of $35,000.

a. Compute the internal rate of return for both projects. Compute the NPV for both projects, using a cost of capital of 10 percent.

b. Which project should be undertaken?

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...