Question
a. (5 points) Suppose you work for a small farm owner and you are asked to calculate a rate of return for two mutually
a. (5 points) Suppose you work for a small farm owner and you are asked to calculate a rate of return for two mutually exclusive projects to determine which project should be selected. Project A has a total life of 3 years with a discount rate of 12% and Project B has a similar total life with a discount rate of 15%. The expected cash flows of the projects are given in the table below: 11. Year Project A Project B 0 -1,000 -800 1 -2,000 -700 2 4,000 3,000 3 5,000 1,500 Would you use the IRR method or MIRR method? State why. Applying the method chosen in part (1), what is the rate of return for each project? Which project would you recommend to the owner? State why.
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