Question
A company is considering two investment projects, Project A and Project B. The cash flows for each project are given in the table below. The
A company is considering two investment projects, Project A and Project B. The cash flows for each project are given in the table below. The company's cost of capital is 10%. Which project should the company choose based on the net present value (NPV) method, the internal rate of return (IRR) method, and the profitability index (PI) method? Provide your recommendations and justify your choices.
| Year | Project A Cash Flow | Project B Cash Flow |
|---|---|---|
| 0 | -$100,000 | -$100,000 |
| 1 | $20,000 | $10,000 |
| 2 | $40,000 | $30,000 |
| 3 | $50,000 | $50,000 |
| 4 | $70,000 | $70,000 |
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
