Posted: September 17th, 2017

*(NPV) *

Project A requires an initial outlay of £100,000, but will return £40,000 at the end of each of years 2, 3 and 4 whereas project B requires an initial outlay of £140,000 but will return £40,000 at the end of years 1, 2, 3 and 4.

Calculate the NPV of each project if the discount rate is 6% compounded annually.

On the basis of your answer to part a), which project would you invest in? Why?

Calculate the IRR for each of the two projects.

On the basis of the IRR which project would you prefer? Is it worth investing in either of the two projects?

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