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Project Evaluation (LO4). Consider the cash flows for the two projects below:
Project A Project B
Initial cash outlay $10,000 $50,000
Net cash inflowsyear 1 $5,000 $22,000
Net cash inflowsyear 2 $5,000 $22,000
Net cash inflowsyear 3 $5,000 $22,000
The company uses a discount rate of 10% for evaluating projects.
Required:
a.Using the tables, calculate the net present value for the two projects. Which project yields the greater NPV?
b. Using the tables, calculate the internal rate of return (IRR) for the two projects. Which project has the higher rate of return?
c.Why does the ranking per NPV favor project B over project A even though project A is more profitable per the IRR criterion?
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