Question
You are considering the following two projects and can take only one. Your cost of capital is 10.9%. The cash flows for the two projects
You are considering the following two projects and can take only one. Your cost of capital is 10.9%. The cash flows for the two projects are as follows ($ million):
| Project | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 |
| A | negative $ 101$101 | $ 25$25 | $ 32$32 | $ 39$39 | $ 48$48 |
| B | negative $ 101$101 | $ 48$48 | $ 39$39 | $ 32$32 | $ 19$19 |
a. What is the IRR of each project?
b. What is the NPV of each project at your cost of capital?
c. At what cost of capital are you indifferent between the two projects?
d. What should you do?
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International Financial Management
Authors: Geert Bekaert, Robert J. Hodrick
4th International Edition
013284298X, 9780132842983
