Question III

The following cash flows are estimated for two mutually exclusive projects:

Project A Project B

Year Cash Flow Cash Flow

0 -$100,000 -$100,000

1 70,000 80,000

2 50,000 40,000

3 20,000 40,000

4 10,000 50,000

a) Find Payback period of both projects.

b) Find the NPV of both projects.

c) Find the MIRR of better project.

d) Find the IRR of both projects.

e) Explain why IRR may provide a wrong choice from a set of mutually exclusive projects.

(25 marks)