Here are the cash flows for two mutually exclusive projects:

Project C0 C1 C2 C3

A -20,000 +8,000 +8,000 +8,000

B -20,000 0 0 +25,000

At what interest rate would you prefer project A to B? (Hint: try drawing a NPV profile.)

a) If the discount rate is below 3%.

b) If the discount rate is above 3%.

c) If the discount rate is above 4%.

d) A is never preferred to B at any discount rate.

Which project has the highest IRR?

a.Project A

b. Project B

c. They have equal IRRs.