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Part 1

Your boss hands you the following information about two mutually exclusive projects. She adds the following: "Our discount rate is

10%

and both projects have IRRs over 20%. Unfortunately, we are unable to implement both, so we will go with project A since it has the highest IRR of the two." How would you respond? Give a supporting numerical analysis.

Projects	Cost of Capital	IRR	Initial Cash Flow	Cash Flow in One Year
A	10%	560%	$2000	$13,200
B	10%	21%	$150,000	$181,500

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Part 1

Ranking the projects by IRR would lead to

a correct

an incorrect

decision because the NPV of project A is

$enter your response here

and the NPV of project B is

$enter your response here.

This means that project

A

B

has the higher NPV, which results in

different

the same

projects being selected by the NPV and IRR rules.

(Round to the nearest dollar as needed.)