Question 4: a) Explain why the internal rate of return method is more popular than the net present value method. Discuss two potential problems with relying on the IRR method over net present value (NPV) method. (8 marks)

b) Project Alpha requires an outlay of $10,000 immediately. Project Alpha has a 1 year life and is expected to produce a net cash flow at the end of one year of $20,000. Project Beta, a mutually exclusive alternative to Alpha, requires an outlay of $20,000 immediately. It too is expected to have a 1-year life and to produce a net cashflow at the end of one year of $35,000. i. Compute the internal rate of return for both projects. Compute the NPV for both projects, using a cost of capital of 10 percent. (10 marks)

ii. Which project should be undertaken? (2 marks)