Question 12: NPV versus IRR (LO1,5) Parkallen Inc. has identified the following two mutually exclusive projects:

Year Cash Flow (A) Cash Flow (B)

0 -$29,000 -$29,000

1 14,400 4,300

2 12,300 9,800

3 9,200 15,200

4 5,100 16,800

a. What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct?

b. If the required return is 11%, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?

c. Over what range of discount rates would the company choose Project A? Project B? At what discount rate would the company be indifferent between these two projects? Explain.