You are offered the following two mutually exclusive projects.

Project A

Year 0: -10,000

Year 1: 7,000

Year 2: 7,000

Project B

Year 0: -200,000

Year 1: 130,000

Year 2: 130,000

(a) What are the IRRs of these two projects?

(b) If you are told only the IRRs of the project (and nothing else), which project would you choose?

(c) What important piece of information did you ignore in (b)?

(d) What is the incremental IRR from choosing project B rather than project A?

(e) If the appropriate discount rate is 15%, based on your answer to (d) which project would you choose?

(f) At a 15% discount rate, which project has the higher NPV?