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    Capital budgeting

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    B6. (Investment criteria) Consider the cash flows for the two capital budgeting projects given
    here. The cost of capital is 10%.

    a. Calculate the NPV for both projects.
    b. Calculate the IRR for both.
    c. Calculate the PI for both.
    d. Calculate the MIRR for both.
    e. Calculate the payback for both.
    f. Which is the better project? Why?

    YEAR 0 1 2 3 4
    Project A −25,000 10,000 10,000 10,000 10,000
    Project B −12,500 5,000 5,000 5,000 5,000

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    Solution Summary

    The solution explains the calculation of NPV, IRR, PI, MIRR and payback for the given projects