Question
A company aspires to achieve an internal rate of return of at least 20% on its annual investment. There are two potential projects with the
A company aspires to achieve an internal rate of return of at least 20% on its annual investment. There are two potential projects with the parameters given in the table below. With a discount factor of 3 % stable for 7 years. Which project should the company choose, and why, if only based on financial information?
| Project A | Project B | ||||
| Year | Income | Cost | Year | Income | Cost |
| Y0 | 0 | 300,000 | Y0 | 0 | 400,000 |
| Y1 | 0 | 190,000 | Y1 | 50,000 | 100,000 |
| Y2 | 150,000 | 0 | Y2 | 150,000 | 0 |
| Y3 | 220,000 | 30,000 | Y3 | 250,000 | 50,000 |
| Y4 | 215,000 | 0 | Y4 | 250,000 | 0 |
| Y5 | 205,000 | 30,000 | Y5 | 200,000 | 50,000 |
| Y6 | 197,000 | 0 | Y6 | 180,000 | 0 |
| Y7 | 100,000 | 30,000 | Y7 | 120,000 | 30,000 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
