Net Present Value Versus Internal Rate of Return For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Skiba Company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow: Year Project I Project II 0 $(100,000) $(100,000) 1 63,857 2 134,560 63,857 Skiba's cost of capital is 14%.

Net Present Value Versus Internal Rate of Return For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Skiba Company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow: Year Project I Project II $(100,000) $(100,000) 63,857 63,857 134,560 Skiba's cost of capital is 14%. Required: 1. Compute the NPV and the IRR for each investment. Round present value calculations and your final NPV answers to the nearest dollar. Round IRR answers to the nearest whole percent. NPV IRR X Project I Project II X % % $ 2. Conceptual Connection: Explain why the project with the larger NPV is the correct choice for Skiba. NPV is an absolute profitability measure and reveals how much the value of the firm will change for each project. IRR gives a measure of relative profitability . Thus, since NPV reveals the total wealth change attributable to each project, it is preferred to the IRR measure