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A company can choose between the following two mutually exclusive investment projects. Today YEAE1 YEAR2 YEAR3 YEAR4 IRR project A -5000 4000 3000 2000 1000

A company can choose between the following two mutually exclusive investment projects.

	Today	YEAE1	YEAR2	YEAR3	YEAR4	IRR
project A	-5000	4000	3000	2000	1000	46%
project B	-15000	8000	6000	5000	4000	23%

The cost of capital is 10%. Which project should the firm choose? And can this choice be defended with the IRR rule?

In this constellation, the company should choose [question1] The reason is that the IRR of the incremental cash flows is [question2] % and therefore [question3(smaller or larger)] than the cost of capital.

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