Project A Project B
Initial cost $(50,000) $(100,000)
Year 1 30,000 55,000
Year 2 30,000 55,000
Year 3 30,000 55,000
A. What is the internal rate of return for each project?
B. What is the NPV for each project?
C. Which project should John choose?
D. What are the drawbacks to using internal rate of return?
The solution examines the internal rate of return versus the net present value.