Problem $23$

Daniel David, president of the Grand Rabbits Corporation, is considering two investment

projects. Only one of the two will be selected this year. Information regarding each project

is as follows:

Investment Project #$1$: Renovate an existing motel for $$1,000,000.$ After tax, cash flows are

expected to be $$200,000$ per year for twenty years.

Investment Project #$2$: Build a new motel for $$4,000,000.$ After tax, annual cash flows are

expected as follows:

Assume a discount rate of $12$ percent.

Required:

$1)$Based on the NPV model, which of the two projects should be selected?

$2)$Based on the IRR model, which of the two projects should be selected? $3)$ Which model would you prefer, why? Answer these three answer asap, will rate!