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Question
Company K is considering two mutually exclusive projects. The cash flows of the projects are as follows:| Year | Project A | Project B |
| 0 | -$2,000,000 | -$2,000,000 |
| 1 | 500,000 | |
| 2 | 500,000 | |
| 3 | 500,000 | |
| 4 | 500,000 | |
| 5 | 500,000 | |
| 6 | 500,000 | |
| 7 | 500,000 | 5,650,000 |
a. Compute the NPV and IRR for the above two projects, assuming a 13% required rate of return.
b. Discuss the ranking conflict.
c. What decision should be made regarding these two projects?
Answer
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