A firm has a capital budget of $100 which must be spent on one of two projects, each requiring a present outlay of $100. Project A yields a return of $120 after one year, whereas Project B yields $201.14 after 5 years. Calculate:

i the NPV of each project using a discount rate of 10%;

ii the IRR of each project.

What are the project rankings on the basis of these two investment decision-rules?

Suppose that you are told that the firm’s reinvestment rate is 12%, which project should the firm choose?