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Determining NPV and IRR for given projects

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 -$2,000
1 $500
2 $500
3 $500
4 $500
5 $500
6 $500
7 $500 $5,650
a. Compute the NPV and IRR for the above two projects, assuming a 13%
required rate of return.
b. Discuss the ranking conflict.
c. Which of these two projects should be chosen?

Solution Preview

Please refer attached file for better clarity of tables and formulas.

Solution:

Year Project A Project B PV for Project A PV for Project B
@13% @13%
0 -2000 -2000 -2000.00 -2000.00
1 500 0 442.48 ...

Solution Summary

Solution describes the steps needed for choosing one project based upon NPV and IRR criteria.

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