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You are the financial manager at a manufacturing firm. You have two potential projects to...

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Accounting

You are the financial manager at a manufacturing firm. You have two potential projects to consider for expansion:

  • Project A: Requires an initial investment of $5,000,000 and is expected to generate cash inflows of $1,000,000 annually for 7 years.
  • Project B: Requires an initial outlay of $4,500,000 with expected cash inflows of $1,200,000 annually for 5 years.

a. Calculate the NPV for both projects assuming a discount rate of 7%. b. Determine the IRR for each project. c. Compare the profitability index of the projects. d. Make a recommendation on which project to undertake and explain your reasoning.

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