As the chief financial officer of Orient Express, you are offered the following two mutually exclusive projects.

Cash Flow ($)

Year Project A Project B

0 -5,000 -100,000

1 3,500 65,000

2 3,500 65,000

a. What are the IRRs of these two projects?

b. If you are told only the IRRs of the projects, which would you choose?

c. What did you ignore when you made your decision in part (b)?

d. According to the NPV rule, which of these two projects should be pursued? Assume a 15 percent discount rate.