Question
3 NPV and IRR (4 points) You are a financial analyst at Spartan Spirit Corporation. Your boss asks you to evaluate two potential projects to
3 NPV and IRR (4 points)
You are a financial analyst at Spartan Spirit Corporation. Your boss asks you to evaluate two potential projects to make a decision as which one to choose. These two projects are mutually exclusive, that is, you can only choose one and give up on the other. Here are the information on cash flows: Your firms required rate of return is 10%. Answer the following questions and clearly state your formulas and rationale:
Year 0 1 2 3 4 | Project A -$300 $350 $500 -$100 $300 | Project B -$800 $650 $950 -$200 $250 |
Calculate NPV for both projects, and state which one to choose baed on NPV.
Calculate IRR for both projects, and state which one to choose baed on IRR.
State what seems to be the problem here with IRR, and why we should use NPV in this case.
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