Question
A company is examining two projects as a part of its expansion plan for the next year. Both projects are not mutually exclusive. The cost
A company is examining two projects as a part of its expansion plan for the next year. Both projects are not mutually exclusive. The cost of Project A is $12,950 while Project B is expected to cost $18,625. The company's cost of capital (required rate of return) is 11.5 %. Expected annual cash flows are projected to be as follows:
| Year | Project A | Project B |
| 1 | 3,250.00 | 6,850.00 |
| 2 | 3,250.00 | 6,850.00 |
| 3 | 3,250.00 | 6,850.00 |
| 4 | 3,250.00 | 6,850.00 |
| 5 | 3,250.00 | 6,850.00 |
Each project will last an estimated 5 years with no remaining significant scrap value. Determine the IRR and the NPV for each of these two projects. What should Henn Corp decide about each proposed project.
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