Question
Suppose a company is considering two investment projects, Project A and Project B. The company's risk-free rate is 5% and its required rate of return
Suppose a company is considering two investment projects, Project A and Project B. The company's risk-free rate is 5% and its required rate of return is 12%. The following table shows the cash flows for each project:
Year | Project A Cash Flow | Project B Cash Flow |
---|---|---|
1 | $100 | $50 |
2 | $200 | $100 |
3 | $300 | $150 |
4 | $400 | $200 |
5 | $500 | $250 |
Calculate the net present value (NPV) and the internal rate of return (IRR) for each project, and advise the company on which project it should choose based on risk management principles.
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Financial and Managerial Accounting Using Excel for Success
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