Question
Paydirt Petes Poinsettias is analyzing two independent projects, A and B, with the following cash flows, in millions . Project A is 4 year project
Paydirt Petes Poinsettias is analyzing two independent projects, A and B, with the following cash flows, in millions. Project A is 4 year project with initial (time 0) cash outflow of $512.5 and times 1-4 cash inflows of $187.5, $190, $192.5, and $195 respectively. Project B is a 4 year project with initial (time 0) cash outflow of $1225.5 and times 1-4 cash inflows of $375, $379.50, $384, and $439.5 respectively. The companys WACC is 12 percent. Complete the timeline below. If the decision is made by choosing the project with the higher IRR, will the company lose or gain value? HINT Calculate NPV and IRR for both projects!
Choices:
The company will gain value, because the project with the highest IRR also has the highest NPV.
The company will lose value, because the project with the highest IRR has a lower NPV.
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