Agglomerated Products Incorporated (API) is considering two mutually exclusive projects. Project A will require an investment of $30 million today, and will return $100 million at the end of 10 years (a one-time cash flow). Project B will cost $4 million today, but will return 1 million in EACH of the next 10 years. APIs weighted average cost of capital is 12 percent.

a) Calculate the NPV and IRR from each of these projects.

Based solely on the NPV rule, which project is preferred?

Based solely on the IRR rule, which project is preferred?

b) Calculate the NPV and IRR of differential cash flows associated with choosing project A instead of project B.

Describe the differential cash flows and use the incremental IRR rule to determine which project is preferred.

Explain how you have applied the incremental IRR rule.