subject: business finance

b. A company is considering two mutually exclusive investment alternatives. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial cash outlay and length of life. The company anticipates a cost of capital of 12%, and the net after tax cash flows of the projects are as follows: Year 0 1 2 3 4 Project X (000 (1000) 100 300 400 700 Project Y ($ 000) (1000) 1,000 100 50 50 1 Required: i. Calculate NPV, IRR and MIRR of both projects. ii. Recommend, with reasons, which project you would undertake (if either). (Note: you are required to perform necessary calculations to support your answer.) iii. Briefly explain the inconsistency in ranking of the two projects in view of the remarks of the directors