As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows:.
Year Project X cash flow Project Z cash flow
0 -$100,000 -$100,000
1 50,000 10,000
2 40,000 30,000
3 30,000 40,000
4 10,000 60,000
If Denver's cost of capital is 15 percent, which project would you choose?
Here are your options:
Project X, since it has the higher IRR.
Project Z, since it has the higher NPV.
Project X, since it has the higher NPV.
Project Z, since it has the higher IRR.
Please see the attached file. The IRR and NPV of the projects are
Project X Z
IRR 14.5% 11.8%
The solution explains how to choose between mutually exclusive projects.