Question
11. Project A needs $10 million investment and generates $10 million each in year 1 and year 2. It has NPV of $7.4 million at
11. Project A needs $10 million investment and generates $10 million each in year 1 and year 2. It has NPV of $7.4 million at a discount rate of 10% and IRR of 61.8%. Project B needs $1 million investment and generates $2 million in Year 1 and $1 million in Year 2. Its NPV at a discount rate of 10% and IRR turn out to be $1.6 million and 141.4% respectively. a. What project do you take based on the IRR decision rule? b. What project do you take based on the NPV decision rule? c. Do you get the same decision under both rules? If not why? Which project do you ultimately decide to do?
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