Question
Your manager has asked you to compare two possible 5-year projects at your organization. The first named Project Arno has an upfront investment of $100M
Your manager has asked you to compare two possible 5-year projects at your organization. The first named Project Arno has an upfront investment of $100M in Year 0 but then returns level cash flows of $30M in Years 1 and 2 followed by $50M for Years 3 through 5. The second one is named Project Bello with an upfront investment of $5M returning $3M for Years 1 through 5. Your organizations weighted average cost of capital (or required rate of return on projects) equals 12%. Calculate the Net Present Value and the Internal Rate of Return for both projects. Which is the preferred project and why?
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