NET PRESENT VALUE VERSUS INTERNAL RATE OF RETURN A company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow:

Year Project I Project II 0 $(100,000) $(100,000)

1 — 63,857 2 134,560 63,857 The company’s cost of capital is 10 percent.

Required:

. Compute the NPV and the IRR for each investment.

. Explain why the project with the larger NPV is the correct choice for the company.

Problems Problem