# NPV versus IRR: At what interest rate would you prefer Project A to B; what is IRR?

NPV versus IRR. Here are the cash flows for two mutually exclusive projects:

Project C0 C1 C2 C3

A

-$20,000 +$8,000 +$8,000 +$8,000

B

-$20,000 0 0 +$25,000

a. At what interest rates would you prefer project A to B? Hint: Try drawing the NPV profile of each project.

b. What is the IRR of each project?

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#### Solution Preview

a. At what interest rates would you prefer poject A to B?

Let Payment = 8000

FV = -25000

PV = 0

Number of periods = 3

compute Rate = 4.11%

Then if Rate < 4.11%, the PV of ...

#### Solution Summary

The solution shows all the calculations to arrive at the correct responses to the questions.

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