2. 12.

NPV versus IRR [LO 9.1, LO 9.5] Bail-up Industries has identified the following two mutually exclusive projects:

1. 1. What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct?
2. If the required return is 11 per cent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?
3. Over what range of discount rates would the company choose Project A? Project B? At what discount rate would the company be indifferent between these two projects? Explain.

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Year Cash flow (A) Cash flow (B) 0 -$37500 -$37500 1 17300 5700 2 16200 12900 3 13 800 16300 4 7 600 27500