a.Firm 1 has 10,000 to invest. Firm 2 offers Firm 1 the following proposal: invest 10,000 now and get 11,000 back in 12 months. The returns on this investment are guaranteed, and there are no other costs involved? What should Firm 1 do?

b.Firm 1 is considering investing their profit into any of the following two projects. Investment appraisal techniques have been used, and the following results found:

Project A

Project B

Internal Rate of Return

6%

8%

Net present value

88000

61000

Through an examination of each of the investment appraisal techniques above, which project should Firm 1 select?