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A company is evaluating two potential investments with the following cash flows: Year Investment G ($) Investment H ($) 0 -200,000 -250,000 1 80,000 100,000
A company is evaluating two potential investments with the following cash flows:
Year | Investment G ($) | Investment H ($) |
0 | -200,000 | -250,000 |
1 | 80,000 | 100,000 |
2 | 90,000 | 110,000 |
3 | 100,000 | 120,000 |
4 | 110,000 | 130,000 |
The firm's required rate of return is 10%.
Requirements: a) Calculate the NPV for both investments. b) Determine the IRR for both investments. c) Discuss which investment is more desirable based on NPV and IRR. d) Explain any potential pitfalls of using IRR as the sole criterion for decision-making.
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